Why the banks *held* toxic securities

John Gapper of the FT is proving himself to be eponymous (or rather the reverse -- whatever you call someone who's named for what he does). As the financial crisis has enfolded, he's emerged as a master at pinpointing the gaps in regulatory regimes that the banks have exploited.

Today he provides a primer in how the banks evaded capital requirements, why they loaded up on mortgage-backed securities, and how they rendered the 1988 Basel Accord (Basel I), which set capital adequacy standards for global banks, obsolete. Basel I, he recounts, set the minimum ratio of capital to assets at a conservative 8%, "but some investment banks entered this downturn with capital-to-asset ratios of 30 times or more." How did they pull that off? Gapper:

On assets, Basel introduced the notion of risk weighting, which essentially meant that some kinds of loans – for example, highly rated corporate bonds and, yes, residential mortgages – were considered less risky than others, so less capital needed to be held against them.

It was not a bad idea in principle but it set off two decades of financial engineering by banks to classify as many of their assets as possible as low-risk weighted in order to swell their balance sheets and so make a higher return on capital.

One of the puzzles of the financial crisis is why banks were caught with huge amounts of securitised mortgage debt when the point of securitisation – turning assets into securities – is to be able to sell loans.

Viewed through the Basel lens, however, the hoarding of securities made sense. By transforming 50 per cent risk-weighted mortgage loans into triple A securities, and with the help of rating agencies, banks reduced the amount of capital that they needed to hold against these assets.

That explains why the banks were not just packaging and selling toxic mortgage-backed securities for luscious fees, but holding these securities. And that was only step one in the metastasizing of leverage enabled by illusory risk management. Gapper again:

A bit of insurance wizardry took the regulatory arbitrage further. Banks could cut their capital charge to near zero by laying off the credit risk of mortgage securities to AIG through credit default swaps. Hey presto, billions of dollars of assets absorbing virtually no capital!

As the debt securities were illusory wealth, the CDS's proved to be illusory insurance. That's because they were not regulated as insurance -- CDS issuers were not under the jurisdiction of state insurance regulators, and so were not required to hold reserves to pay "claims," as payouts on credit defaults would be called if CDS's were true insurance. Quite a double-reverse the banks pulled off to get themselves past regulators and downfield into leverageland.

It has often been observed that as surely as bacteria adapt to antibiotics, human beings and the institutions they create will find the gaps in regulatory regimes. That's no reason to despair of regulation, though, any more than we abandon antibiotics. Regulatory reform must be ongoing as conditions change. And the best defense against corrupted regulatory reform is effective lobbying reform. Which in turn generates its own cycle of creative evasions. This cycle itself cannot be evaded.

Condi Rice to 4th Grader: Terror Works

Asked by a fourth grader what she thought about the Obama administration's comments about Bush-era interrogation techniques, Condoleezza Rice first insisted that Bush was determined to do nothing illegal, then added this special pleading:

"I hope you understand that it was a very difficult time. We were all so terrified of another attack on the country. September 11 was the worst day of my life in government, watching 3,000 Americans die. . . . Even under those most difficult circumstances, the president was not prepared to do something illegal, and I hope people understand that we were trying to protect the country."

Out of the mouth, to babes: the former National Security Adviser and Secretary of State confesses that the U.S. government was terrified by the September 11 attacks. That's as good an explanation as any I've read as to why they shredded core Constitutional protections, abrogated U.S. treaty obligations and broke U.S. law in a rush to implement torture tactics learned from Communist adversaries and considered ineffectual by top authorities at the F.B.I., in the military and even by many within the CIA.

I don't object to Rice telling children that she was "terrified" by 9/11. In fact, it's rather moving. What I object to is that the Bush team let terror control their response to the attacks.

A lesson in humility from Robert Gates

A month ago, commenting on the G-20 meeting, the FT's Philip Stephens credited Obama with recognizing that "to understand the extent of US power – and it is still unrivalled – a president must also map its limits."

Defense Secretary Robert Gates elaborated that principle as the core strategy of U.S. foreign policy in a long interview with CNN last week.

He began with a primer on the power of apology and self-correction:

Q You've heard a lot of Republican criticism that he's going around the world apologizing about America. Do you accept that?

SEC. GATES: Well, I like to remind people that when President George W. Bush came into office, he talked about a more humble America. And, you know, you go back to Theodore Roosevelt and his line about speaking softly but carrying a big stick. I think that acknowledging that we have made mistakes is not only factually accurate - I think that it is unusual because so few other governments in the world are willing to admit that, although they make them all the time, and some of them make catastrophic mistakes.

And in speeches myself, I have said that at times we have acted too arrogantly. And I didn't feel that I was being apologetic for America. I just was saying because - I was just saying that that's the way we are in terms of being willing to recognize our own limitations, and when we make a mistake, to correct it, because I think the next line that I always use is, no other country in the world is so self-critical and is so willing to change course when we feel that we've strayed from our values or when we feel like we've been too arrogant.

So I think - I have not seen it as an apology tour at all, but rather a change of tone, a more humble America. But everybody knows we still have the big stick.

Gates proceeded to model this humility when discussion turned to Pakistan. He not only refused to patronize or denigrate Pakistani efforts against the Taliban but equated their failures with American failures in counter-terror and counterinsurgency over the past sixteen years:

Q But you do think that the [Pakistani] leadership gets it? Because I look at what's happened, Mr. Secretary. They have these Taliban forces, insurgency, 60 miles from the capital, 100 miles from the capital. And what they've done so far is move 6,000 troops from the eastern border to the western border out of an army of about a half-million.

This does not strike one as a full-throated response at every level that mobilizes the nation and its defense forces. Do you think that there is still a way to go for the Pakistani military in terms of focusing on this threat?

SEC. GATES: Well, I think what you have to do is look at it in some historical context. For 60 years Pakistan has regarded India as its existential threat, as the main enemy. And its forces are trained to deal with that threat. That's where it has the bulk of its army and the bulk of its military capability.

And historically, the far western part of Pakistan has generally been ungoverned. And the Pakistani governments going back decades would do deals with the tribes and the Pashtuns and would play the tribes against one another, and occasionally, when necessary, use the army to put down a serious challenge.

I think that - and partly it's because the Punjabis so outnumber the Pashtuns that they've always felt that if it really got serious, it was a problem they could take care of. I think the - that's why I think the movement of the Taliban so close to Islamabad was a real wake-up call for them.

Now, how long it takes them to build the capabilities, the additional military capabilities and the training that goes into counterinsurgency and so on and to develop the civilian programs that begins to push back in that part of the country, I think, is still a period ahead of us.

But I would just remind that, you know, the first al Qaeda attack on the United States was in 1993. We really didn't change much of anything we did until after we were hit on September 11th, 2001. So al Qaeda was at war with us for eight years, at least eight years, before we acknowledged that we were at war with them as well. And I think a little bit of the same denial has been going on in Pakistan. But I think that the recent developments have certainly got their attention.

Q Do you think they have the counterinsurgency capacity? Because at some level armies don't like to fight these kind of wars, as you well know. What armies like to do is have a big enemy so they can have a big budget and never have to fight a war. And that is, in effect, what has happened with Pakistan with India, which is they have this big enemy. It justifies a very large budget for the Pakistani military. But they don't actually have to fight, whereas this one, the insurgency, is one which they have to fight. They could lose. And so they worry, I think, that they even have the capacity. Do they have the capacity for real counterinsurgency?

SEC. GATES: Well, I think that they are at the beginning of the process of developing that capacity. But again, to provide some perspective, in 2003, when we went into Iraq, or even in 2001 and '02, when we went into Afghanistan, our Army didn't have that capacity either. We had forgotten everything we learned about counterinsurgency in Vietnam. And it took us several years to change our tactics and to get ourselves into a position where we could effectively fight a counterinsurgency.

So institutions are slow to change even in the face of a real threat. And I think that the Pakistanis are beginning to open up to others, to get additional help. I certainly hope that's the case. But I don't - it's not something where I would sort of blame the Pakistani army, because we went through the same process ourselves as we confronted a building insurgency in Iraq.

We had to learn all over again how to do this, and we had to acquire the equipment to do it effectively, completely outside the normal Pentagon bureaucracy, for the most part. So perhaps I have a little more understanding of the challenges that our Pakistani counterparts face than perhaps others.

Finally there was this discussion of the limits of our capabilities in Afghanistan -- and how to leverage the power that we do have:

Q You once said that the chief lesson you learned from 40 years in government was the limits of power. So apply that lesson to Afghanistan today. What do you think of - what are the limits to what America can do in Afghanistan?

SEC. GATES: Well, I have been quoted as accurately as saying I have real reservations about significant further commitments of American military - of the American military to Afghanistan, beyond what the president has already approved. The Soviets were in there with 110,000, 120,000 troops. They didn't care about civilian casualties. And they couldn't win. If there's ever an example that military power alone cannot be successful in Afghanistan, I think it was the Soviet experience. And I think there's a lot we can learn from that. And so I worry - it is
absolutely critical that the Afghans believe that this is their war. It is their war against people who are trying to overthrow their government that they democratically elected.

For all of its flaws and shortcomings, it is theirs. And they - we must be their partner and their ally. If we get to the point where the Afghan people see us as occupiers, then we will have lost. So the way we treat the Afghans, the importance of keeping the Afghans in the lead in many of these activities, the military as well as the civilian, I think is absolutely critical, so that they know - so that these villagers know that it's their people who are leading this fight. This isn't some foreign army coming in there, like all the previous foreign armies, to just occupy them.

Q But that means that a year from now, six months from now, you are unlikely to approve a request for additional troops in Afghanistan.

SEC. GATES: I would be a hard sell; there's no question about it. And I have not made a secret of that, either publicly or in government meetings. I think we will have - between the American military commitment and our coalition partners, the ISAF partners, we will have about 100,000 troops in Afghanistan. That's only about 10,000 shy of what the Russians had. And I think we need to think about that.

My view is it would be a far better investment to focus on building the strength of the Afghan army and the Afghan police, making sure that of the numbers of people we have there, there are adequate trainers so that we can accelerate the growth of those forces.

It's that combination of a certain level of international support for the Afghan military effort and the growing of the Afghan security forces themselves. It's that partnership that I think eventually will be successful in Afghanistan. As long as - if we try to do it all ourselves, I think it won't work.

If we try to do it all ourselves, I think it won't work. What was that, up top, about the U.S. learning from its mistakes?

Homo electus and the last election

A remarkable Times article today documenting improvement in race relations in the U.S. since Obama's election also bears witness to the power of democratic participation as an expression of human nature:

“I didn’t vote for Obama,” said Chris Miller, 46, a boat builder in Johnstown, N.Y., who is white. “But just what I saw during the campaign — you had people, white, black, yellow, green, gray, every race and nationality out there together supporting that man. That right there showed me, hey, things are changing, things are better here. I had never seen anything to that extent.”

Alan Ingram, 29, a Web site designer in Milwaukee, agreed. “People had more of an opportunity to get together with this election and all of its events,” said Mr. Ingram, who is black. “You literally saw people of all kinds of backgrounds finding common ground.”

In a cafe on Friday, Mr. Ingram struck up an easy conversation with Nicole Nelson, a white law student, who agreed with his assessment.

“I went to an Obama rally, and I saw everything,” Ms. Nelson said. “I voted for him despite being brought up with conservative, small-town values in a place that had no diversity. I think it was a matter of exposure that changed how I looked at life.”

Color me a sap: that gives me chills.

There are good democrats (small "d," as in believers in democracy) who are what you might call minimalist democrats, of the school that "democracy is the worst form of government, except for all the alternatives." According to this school, democracy is necessary because no one can be trusted with power, everyone must be held accountable. This skepticism about human nature is fundamental to all democratic - and indeed, Republican - theory and underpins the U.S. Constitution with its separation of powers.

But is democracy's chief virtue negative - a check against corruption of power? A more expansive view is that political participation makes us fully human, and that democracy provides the opportunity for such participation to all. According to Aristotle, "man is by nature a political animal"; the political community, as the most developed social unit, is the ultimate expression of human nature, and "the administration of justice, which is the determination of what is just, is the principle of order in political society." Democracy provides the opportunity and responsibility to all adults to participate in "the administration of justice."

Perhaps the ultimate reason that Obama won is that he communicated this understanding of democracy. As, for example, in the Jan. 5, 2008 debate:

And, you know, so the truth is actually words do inspire. Words do help people get involved. Words do help members of Congress get into power so that they can be part of a coalition to deliver health care reform, to deliver a bold energy policy. Don't discount that power, because when the American people are determined that something is going to happen, then it happens. And if they are disaffected and cynical and fearful and told that it can't be done, then it doesn't. I'm running for president because I want to tell them, yes, we can. And that's why I think they're responding in such large numbers.

We had an election last year that riveted the nation, that revived and elevated political discourse, that generated a fresh drive toward a more perfect union and in itself changed this nation for the better.

Further, if human beings are essentially social animals, and if politics is the highest form of social interaction (plenty of room for debate there, I know..), and if our politics ultimately changes our values and our behavior, then we may actually be driving our own evolution through political action. Call us homo electus.

Over the meadow and through the woods with Obama

In an interview with the Times' David Leonhardt, Obama told a story about his grandmother to frame a problem in our education system:

My grandmother never got a college degree. She went to high school. Unlike my grandfather, she didn’t benefit from the G.I. Bill, even though she worked on a bomber assembly line. She went to work as a secretary. But she was able to become a vice president at a bank partly because her high-school education was rigorous enough that she could communicate and analyze information in a way that, frankly, a bunch of college kids in many parts of the country can’t. She could write —

LEONHARDT: Today, you mean?

THE PRESIDENT: Today. She could write a better letter than many of my — I won’t say “many,” but a number of my former students at the University of Chicago Law School. So part of the function of a high-school degree or a community-college degree is credentialing, right? It allows employers in a quick way to sort through who’s got the skills and who doesn’t. But part of the problem that we’ve got right now is that what it means to have graduated from high school, what it means to have graduated from a two-year college or a four-year college is not always as clear as it was several years ago.

And that means that we’ve got to — in our education-reform agenda — we’ve got to focus not just on increasing graduation rates, but we’ve also got to make what’s learned in the high-school and college experience more robust and more effective.

Reading this made me recall my astonishment when I read in Doris Kearns Goodwin's biography of Eleanor and Franklin Roosevelt, No Ordinary Time, that on the eve of World War II only about 25% of American adults had graduated from high school. That's approximately the percentage that graduates from college today. Is the average U.S. college grad today better educated than the average high school grad in 1940? I'm sure that by meany measures the answer is 'yes,' and that by a few, it's probably no. And compelling as Obama's example is, we need to keep in mind that based on the genetic evidence before us, his grandmother probably had a bit of a brain in her head. She may have written like a mature adult when she was twelve.

In the same interview, Obama told a second, far more remarkable, story about his grandmother:

Now, I actually think that the tougher issue around medical care — it’s a related one — is what you do around things like end-of-life care —

LEONHARDT: Yes, where it’s $20,000 for an extra week of life.

THE PRESIDENT: Exactly. And I just recently went through this. I mean, I’ve told this story, maybe not publicly, but when my grandmother got very ill during the campaign, she got cancer; it was determined to be terminal. And about two or three weeks after her diagnosis she fell, broke her hip. It was determined that she might have had a mild stroke, which is what had precipitated the fall.

So now she’s in the hospital, and the doctor says, Look, you’ve got about — maybe you have three months, maybe you have six months, maybe you have nine months to live. Because of the weakness of your heart, if you have an operation on your hip there are certain risks that — you know, your heart can’t take it. On the other hand, if you just sit there with your hip like this, you’re just going to waste away and your quality of life will be terrible.

And she elected to get the hip replacement and was fine for about two weeks after the hip replacement, and then suddenly just — you know, things fell apart.

I don’t know how much that hip replacement cost. I would have paid out of pocket for that hip replacement just because she’s my grandmother. Whether, sort of in the aggregate, society making those decisions to give my grandmother, or everybody else’s aging grandparents or parents, a hip replacement when they’re terminally ill is a sustainable model, is a very difficult question. If somebody told me that my grandmother couldn’t have a hip replacement and she had to lie there in misery in the waning days of her life — that would be pretty upsetting.

And it’s going to be hard for people who don’t have the option of paying for it.

THE PRESIDENT: So that’s where I think you just get into some very difficult moral issues. But that’s also a huge driver of cost, right?

I mean, the chronically ill and those toward the end of their lives are accounting for potentially 80 percent of the total health care bill out here.

So how do you — how do we deal with it?

THE PRESIDENT: Well, I think that there is going to have to be a conversation that is guided by doctors, scientists, ethicists. And then there is going to have to be a very difficult democratic conversation that takes place. It is very difficult to imagine the country making those decisions just through the normal political channels. And that’s part of why you have to have some independent group that can give you guidance. It’s not determinative, but I think has to be able to give you some guidance. And that’s part of what I suspect you’ll see emerging out of the various health care conversations that are taking place on the Hill right now.

Twenty second gush timeout: I still cannot believe that we have as President a man capable of telling such a story without drawing any pat conclusions or scoring any cheap political points. That said, what exactly does he mean by "some independent group that give you guidance"? Just how could such a group have "guided" a funding decision about that hip replacement without being "determinative"?

P.S. Is it typical that about six months after the death of a loved one, that person starts to come back into focus?

P.P.S. As newspapers die on the vine, I can't quite shake the feeling that there's no reason I should be getting and freely sharing this remarkable article for free, even though I'm a Times subscriber.

Nudging toward Bethlehem: Obama's theory of governance

In December, I noted that when asked what he hoped to accomplish in the first two years of his presidency Obama was both modest and ambitious, in that he set expectations for substantive progress on a broad front of issues while also emphasizing that on each front he was aiming to change course rather than effect radical, immediate change.

Tonight, in his hundredth day press conference, Obama elaborated that conception into a theory of leadership that extends decades rather than years:

This metaphor has been used before, but this -- the ship of state is an ocean liner; it's not a speed boat. And so the way we are constantly thinking about this issue of how to bring about the changes that the American people need is to -- is to say, if we can move this big battleship a few degrees in a different direction, we may not see all the consequences of that change a week from now or three months from now, but 10 years from now, or 20 years from now, our kids will be able to look back and say that was when we started getting serious about clean energy, that's when health care started to become more efficient and affordable, that's when we became serious about raising our standards in education.

This remake of the tiredest of metaphors works on two tiers. Obama was talking about both the impact of policies that might be enacted in the near future and about the method by which a President shapes national policy. With regard to method, this "ship of state(ment)" followed a more immediate response to Jeff Zeleny's question, "how has the presidency humbled you?" Here was the prelude:

Humbled by the -- humbled by the fact that the presidency is extraordinarily powerful, but we are just part of a much broader tapestry of American life and there are a lot of different power centers. And so I can't just press a button and suddenly have the bankers do exactly what I want -- (laughter) -- or -- (chuckles) -- or, you know, turn on a switch and suddenly, you know, Congress falls in line. And so, you know, what you do is to make your best arguments, listen hard to what other people have to say and coax folks in the right direction.

The theory of governmance expressed here seems in tune with that laid out in Richard Thaler and Cass Sunstein's Nudge: Improving Decisions about Health, Wealth and Happiness. Methodologically, to "coax" is to nudge. On the policy level, Obama speaks often about creating the right incentives to shape behavior, whether through tax cuts or regulation or medical outcomes research. Fundamental change by degrees is what he's after.

The image of moving the ocean liner a few degrees also casts a retroactive light on what many considered a moment of hubris, Obama's peroration on the night of the final Democratic primary:

If we are willing to work for it, and fight for it, and believe in it, then I am absolutely certain that generations from now, we will be able to look back and tell our children that this was the moment when we began to provide care for the sick and good jobs to the jobless; this was the moment when the rise of the oceans began to slow and our planet began to heal; this was the moment when we ended a war and secured our nation and restored our image as the last, best hope on Earth. This was the moment – this was the time – when we came together to remake this great nation so that it may always reflect our very best selves, and our highest ideals. Thank you, God Bless you, and may God Bless the United States of America.

While the change envisioned is almost apocalyptic, note the constant repetition of the qualifier "began to." The time horizon is longer, and the changes envisioned are greater, but the process is the same: catalyzing, beginning, changing direction. Can you be a messianic pragmatist?

"Obama probably understands this....

Tyler Cowan voices a fear that I've shared:

At many blogs (Sullivan, Yglesias, DeLong, among others) you will find ongoing arguments for prosecuting the torturers who ran our government for a while. I am in agreement with the moral stance of these critics but I don't agree with their practical conclusions. I believe that a full investigation would lead the U.S. public to, ultimately, side with torture, side with the torturers, and side against the prosecutors. That's why we can't proceed and Obama probably understands that. If another attack happened this would be all the more true.

My thought, though, was not that the possibility of backlash would induce Obama to try to foreclose on prosecution, but rather that he was covering his flank with the initial show of reluctance:

...imagine a successful major terrorist attack in the U.S. The country's mood could change in an instant. An authoritarian thug like Giuliani or a demagogic buffoon like Palin could be elected, and really end American civil liberties....

That's why Obama is positioning himself to be pushed. That's why Democrats in Congress won't start investigations without some Republican support. It's not cowardice. It's a matter of building the overwhelming political support needed for a process that will be traumatic in itself and could be destabilizing if coupled with a major external shock.

One assumption that these speculations share is a common one: that Obama is gaming everything out, planning several moves ahead. One hears things like: he reached out to Republicans on the stimulus, knowing he would be rebuffed, so that he could later roll over their opposition (e.g., via reconciliation) on healthcare legislation. Or: he's held off nationalizing major banks so that when the time comes to do so, he will be seen to have exhausted all other options first. So often he is "the one presumed to know," assumed to be several steps ahead of everyone else. A comforting narrative. Sometimes it's even true.

Ahmadinejad's "free and fair choice" for "Palestinians"

Jeffrey Goldberg points out that Mahmoud Ahmadinejad was repeating something he's said many times when he responded as follows to George Stephanopoulos' question whether Iran would accept a two-state solution:

Whatever decision they take is fine with us. We are not going to determine anything. Whatever decision they take, we will support that. We think that is the right of the Palestinian people, however we fully expect other states to so as well.

True enough -- Ahmadinejad has said this many times. Goldberg puts no credence whatever in Ahmadinejad's disavowal of violent intent, so he either didn't notice or doesn't think it worthwhile to point out that this is a trick response -- it doesn't mean what westerners take it to mean.

The trick is apparent in this earlier instance cited by Goldberg:

In 2007, Ahmadinejad told Scott Pelley of 60 Minutes, "The decision rests with the Palestinian people. This is exactly what I'm saying." Pelley asked him, "And if that decision is a two-state solution, you're good with that? You could support a two-state solution?" His response: "Well, why are you prejudging what will happen? Let's pave the ground first for a free and fair choice. And once they make their choice, we must respect that. All the people, all the Palestinian people must be given this opportunity, allow them to make their own decisions" (my emphasis).

Ahmadinejad spelled out more openly what he means by "a free and fair choice" at a "Holocaust Conference" in Teheran in December 2006. The Iranian artist Arash Nourouzi, in an article carefully parsing Western mistranslations of Ahmadinejad's various remarks about Israel, pieces this translation together from various sources:

"As the Soviet Union disappeared, the Zionist regime will also vanish and humanity will be liberated."

He said elections should be held among "Jews, Christians and Muslims so the population of Palestine can select their government and destiny for themselves in a democratic manner.

So: a "free and fair choice" is a referendum including everyone living within the boundaries of Israel and the occupied territories. A referendum, in other words, that would vote Israel out of existence.

Perfectly logical if you accept Ahmadinejad's premise that the "Zionist regime" is fundamentally illegitimate. It is part and parcel with the stance that Iran has taken against Israel from Khomeini's time (see Nourouzi again): the "Zionist regime" is evil, it will "vanish from the page of time" as did the Soviet Union, the Shah of Iran's regime, and Saddam's, but Iran has no intention of precipitating this inevitable end by direct attack.

Given the vitriolic hatred of Ahmadinejad's statements about Israel, Goldberg and other friends of Israel have good cause to doubt Iran's disavowals of intent to themselves make Israel "vanish from the page of time." But the position is not variable, or even particularly ambiguous. In fact it arguably bears some resemblance to the U.S. Cold War stance vis-a-vis the Soviet Union as laid out in George Kennan's famous telegram: be patient, oppose the adversary's aims by means short of all-out war, and confidently anticipate its collapse from internal (in this case, demographic) pressures.

Hillary Gates Obama

Andrew Sullivan worries:

By far the most alarming thing yet said by the Obama administration was secretary of state Clinton's assurance that

We are committed to seeing an Iraq that is sovereign, stable, and self-reliant, and fully integrated into the region.

But, however one interprets specific decisions like delaying withdrawal of U.S. forces from hot spot Mosul,  this statement of commitment merely reiterates the realist, delimited set of goals long articulated by candidate Obama, Defense Secretary Robert Gates and foreign policy realists generally.

Here's Gates, April 10, 2008, to the Senate Arms Services Committee:

It was my hope 16 months ago that I could help forge a bipartisan path forward in our Iraq policy that would sustain a steadily lower, but still adequate and necessary, level of commitment for the years needed to yield an Iraq that is an ally against extremists and can govern and defend itself.

Indeed, Army Times, reporting this statement, wondered whether Gates was not defining success down:

the initial reaction to Gates’ statement from Democrats was a question about whether he was redefining success in Iraq —focusing only on Iraq’s ability to defend itself and serve as a U.S. ally against terrorists and extremists, and leaving out a long list of other stated goals that include economic and political development and an end to sectarian violence.

Here's Obama the very next day, in dialogue with Joint Chief Chairman Michael Mullen, articulating goals that differ from Gates' only in emphasis :

The problem I have is if the definition of success is so high, no traces of Al Qaida and no possibility of reconstitution, a highly-effective Iraqi government, a Democratic multiethnic, multi- sectarian functioning democracy, no Iranian influence, at least not of the kind that we don't like, then that portends the possibility of us staying for 20 or 30 years.

If, on the other hand, our criteria is a messy, sloppy status quo but there's not, you know, huge outbreaks of violence, there's still corruption, but the country is struggling along, but it's not a threat to its neighbors and it's not an Al Qaida base, that seems to me an achievable goal within a measurable timeframe, and that, I think, is what everybody here on this committee has been trying to drive at, and we haven't been able to get as clear of an answer as we would like.

I see no incompatibility these year-old formulations by Obama and Gates and and Clinton's yesterday, which reiterated the planned drawdown on U.S. forces:

The end of the United States’ combat presence in Iraq by 2011 will mark the beginning of a new phase in our country’s relationship. As we draw down militarily, we will deepen our civilian cooperation in accordance with the strategic framework agreement. We will work on development and diplomatic initiatives and a regional agenda that includes border security and refugees.

A thousand difficult on-the-ground decisions about withdrawal remain, and it's not unreasonable to worry that a long series of decisions to delay will stunt the growth of Iraqi authority.  But Andrew has been growing ever more emphatic in forecasting that Iraq will implode as U.S. forces withdraw. Clinton's statement is alarming only if you're hopefully looking for signs that the Obama Administration is positioning itself to let the collapse happen if the alternative seems to be indefnitely delayed withdrawal.  Optimist, incrementalist and pragmatist, Obama is doubtless hoping to avoid that Hobson's choice. 

Depends what your definition of "works" is

Strategic as well as moral clarity on the efficacy of torture from The Anonymous Liberal (h/t Andrew Sullivan):

First, and most obviously,it's completely irrelevant [ [whether the Bush interrogation techniques were 'effective']. Torture is categorically prohibited by numerous laws and treaties. It's illegal. Indeed, it's a war crime. Ethnic cleansing may also be an "effective" way of accomplishing certain strategic goals, but that doesn't make it any less reprehensible or illegal. There are all kinds of "effective" strategies and techniques that are foreclosed by the law and by international treaty...

to make a policy case for the use of such techniques, you would have to do much more than establish that they occasionally have produced actionable intelligence. Among other things, you would have to prove that 1) such information could not have been extracted using other means, 2) that the misinformation produced by such methods doesn't overwhelm the accurate information to the point of rending the whole exercise pointless, 3) that the strategic costs of using such techniques (international outrage, increased radicalization of the Muslim world, increased danger to U.S. troops, etc.) don't outweigh the benefits, and 4) the value of the information produced is worth the tradeoff of never being able to use that information (or the fruits thereof) in court and severely jeopardizing any hope of ever convicting that individual in any constitutionally compliant legal proceeding.

So even if we all check our moral faculties at the door (and choose to ignore the law), the defenders of these techniques have come nowhere close to making a compelling policy case for their continued us.

Couldn't have said it better. In fact I think I said it somewhat worse.

"Did torture work?" is the wrong question - Ali Soufan shows why

Today's NYT op-ed by Ali Soufan, one of the FBI agents who interrogated Abu Zubaydah before the CIA entered the scene and began torturing him, shows that it's pointless to parse rival claims about whether Zubaydah gave up information ultimately leading to the capture of Khalid Shaikh Mohammed before or after the CIA began first subjecting him to cold, nakedness, incessant loud music and sleep deprivation, and later out-and-out torturing him. It's pointless, first, because the claim by Michael Hayden and Michael Mukasey that Zubaydah "was coerced into disclosing information that led to the capture of Ramzi bin al Shibh...who in turn disclosed information which -- when combined with what was learned from Abu Zubaydah -- helped lead to the capture of KSM and other senior terrorists" is simply false:

The information that led to Mr. Shibh’s capture came primarily from a different terrorist operative who was interviewed using traditional methods.

Even more important, arguments about whether specific bits of information were elicited by torture is ultimately beside the point. Leaving aside the undermining of U.S. civil liberties and America's standing in the world, torture undermines the interrogation process itself:

There was no actionable intelligence gained from using enhanced interrogation techniques on Abu Zubaydah that wasn’t, or couldn’t have been, gained from regular tactics. In addition, I saw that using these alternative methods on other terrorists backfired on more than a few occasions — all of which are still classified. The short sightedness behind the use of these techniques ignored the unreliability of the methods, the nature of the threat, the mentality and modus operandi of the terrorists, and due process...

One of the worst consequences of the use of these harsh techniques was that it reintroduced the so-called Chinese wall between the C.I.A. and F.B.I., similar to the communications obstacles that prevented us from working together to stop the 9/11 attacks. Because the bureau would not employ these problematic techniques, our agents who knew the most about the terrorists could have no part in the investigation. An F.B.I. colleague of mine who knew more about Khalid Shaikh Mohammed than anyone in the government was not allowed to speak to him.

Philip Zelikow, who interviewed Soufan for the 9/11 Commission, says that he "seemed to us to be one of the more impressive intelligence agents -- from any agency -- that we encountered in our work."

Having read many passionate claims by people I admire that torture always yields false information, I have feared that such assertions are too simple and too comforting. Soufan, who credibly claims to have obtained valuable results without coercion, provides an honorable practitioner's clarity. The point -- again leaving aside the damage torture does to the society that authorizes it -- is not that torture may never yield true information, but that it corrupts and short-circuits the painstaking, intense long-term engagement required to obtain a body of credible information. Torture yields an indistinguishable mishmash of truth and fiction conforming to what the torturers want to hear -- as when Zubaydah affirmed operational ties between al Qaeda and Iraq.

Wolf, crying; Obama, rebalancing

Can massive fiscal and monetary intervention slow and shorten a Depression?

Martin Wolf's answer: maybe, somewhat. But recovery will be slow, uncertain, fraught with danger.

Today he casts a cold eye on the present, a colder eye on the future, and walks us through four conclusions:

1) Measured by falling output and bank activity, the current crisis is worse than the great Depression.
2) Unprecedented intervention by governments and central banks is likely to break the fall to a degree.
3) Those interventions will create a whole new set of problems and dangers and will be difficult to unwind.
4) We have not begun to cope with the global trade imbalances that made the growth preceding the current crisis unsustainable.

Wolf's quick sketch of Great Depression II took my breath away. Perhaps these facts are well known to economists; they were a slap to me:

In the US, the rate of decline of manufactured output compares with that of the Great Depression. Japan’s output of manufactures has already fallen by almost as much as in the US during the 1930s (see chart). The disintegration of the financial system is, arguably, worse than it was then.

He then offers some apparent comfort in a similarly compressed overview of worldwide government response, which in the aggregate looks almost coordinated:

If the world experiences a “Great Recession”, rather than a Great Depression, the scale of policy support will be the explanation. Three of the world’s most important central banks – the Federal Reserve, the Bank of Japan and the Bank of England – have official rates close to zero and have adopted unconventional policies. The real OECD-wide fiscal deficit is forecast at 8.7 per cent of gross domestic product next year, with a structural deficit of 5.2 per cent. In the US, the corresponding figures are 11.9 and 8.2 per cent. Governments of wealthy countries have also put their healthy credit ratings at the disposal of their misbehaving financial systems in the most far-reaching socialisation of market risk in world history.

But what about the morning after?

What is most disturbing, moreover, is the scale of the policy action required to halt this downward spiral. This raises the big question: how and when might the world return to normality, with sustainable fiscal positions, strongly positive short-term official interest rates and solvent financial systems? That Japan has failed to achieve this over 20 years is surely frightening.

Not to mention the underlying problem, still to be addressed:

The danger is that a turnround, however shallow, will convince the world things are soon going to be the way they were before. They will not be. It will merely show that collapse does not last for ever once substantial stimulus is applied. The brutal truth is that the financial system is still far from healthy, the deleveraging of the private sectors of highly indebted countries has not begun, the needed rebalancing of global demand has barely even started and, for all these reasons, a return to sustained, private-sector-led growth probably remains a long way in the future.

Wolf might have noted that Obama, for one, agrees with him about the core problem and has worked to focus the world's attention upon it. Perhaps the keynote of his G-20 appearance was this, from his April 1 press conference in London:

"In some ways, the world has become accustomed to the United States being a voracious consumer market and the engine that drives a lot of economic growth worldwide," Obama said, hinting that this position may not be sustainable. "We're going to have to take into account a whole host of factors that can increase our savings rate and start dealing with our long-term fiscal position as well as our current account deficits.

Reinforced by this, on April 3 in Baden-Baden, Germany:

...the whole point is to move from a borrow-and-spend economy to a save-and-invest economy.

Now, the U.S. will remain the largest consumer market, and we are going to make sure that it's open. One of the principles that we very clearly affirmed in London was that protectionism is not the answer. It's not the Germans' fault that they make good products that the United States wants to buy. And we want to make sure that we're making good products that Germans want to buy. But if you look overall, there is probably going to need to be a rebalancing of who's spending, who's saving, what are the overall trade patterns.

And it, by the way, it doesn't just include developed economies like Germany and the United States; it also means we want to encourage emerging markets to consume more. If you start seeing China and India improve the living standards of its people, now those are huge markets where we can sell. And that's why the last few days that I've spent talking about the international economy relates directly to the jobs that are being lost in the United States.

Talk not action, one might say. And yet, with the eyes of the world upon a new U.S. President, talk is action. When the time comes for tough negotiations about exchange rates and trade barriers, this overall strategic framework - cast as a shared framework for sustainable global growth -- will be in place.

Zelikow: Obama is "potliticizing" detainee issue with attempt to forestall prosecution

Philip Zelikow makes a simple point about the limits of Obama's authority:

I am not eager to see any government officials prosecuted for crimes because of their zeal to protect their country. But crimes committed for worthy motives are still crimes, and we have institutions to sort this out.

So has anyone beside me found it troubling that President Obama is making announcements on who should be prosecuted for possible crimes? Whatever one's view of the matter, didn't the administration ardently announce its dedication to depoliticizing the Department of Justice? So why is it proper for the president to tell Attorney General Eric Holder what he should conclude?

Zelikow goes on to point out that the only constitutional way Obama can control the ultimate legal fate of those who designed or implemented the Bush Administration's interrogation policies is to issue a blanket pardon.

Update 4/21: It would appear that Obama at least half-agrees with Zelikow (my emphasis):

Mr. Obama said the memos "that were released reflected, in my view, us losing our moral bearings. That's why I've discontinued those enhanced interrogation programs. For those who carried out some of these operations within the four corners of legal opinions or guidance that had been provided from the White House, I do not think it's appropriate for them to be prosecuted. With respect to those who formulated those legal decisions, I would say that that is going to be more of a decision for the attorney general, within the parameters of various laws, and I don't want to prejudge that."

Did torture "work" on Abu Zubaydah?

updated 4/22

Did torturing Abu Zubaydah yield valuable information? Former CIA Director Michael Hayden and former Attorney General Michael Mukasey, writing in the Wall Street Journal, say yes (April 17):

The terrorist Abu Zubaydah (sometimes derided as a low-level operative of questionable reliability, but who was in fact close to KSM and other senior al Qaeda leaders) disclosed some information voluntarily. But he was coerced into disclosing information that led to the capture of Ramzi bin al Shibh, another of the planners of Sept. 11, who in turn disclosed information which -- when combined with what was learned from Abu Zubaydah -- helped lead to the capture of KSM and other senior terrorists, and the disruption of follow-on plots aimed at both Europe and the U.S. Details of these successes, and the methods used to obtain them, were disclosed repeatedly in more than 30 congressional briefings and hearings beginning in 2002, and open to all members of the Intelligence Committees of both Houses of Congress beginning in September 2006. Any protestation of ignorance of those details, particularly by members of those committees, is pretense.

An unnamed "former intelligence official" tells Scott Shane of The New York Times no:
(April 18):

Abu Zubaydah had provided much valuable information under less severe treatment, and the harsher handling produced no breakthroughs, according to one former intelligence official with direct knowledge of the case. Instead, watching his torment caused great distress to his captors, the official said.

The Times account continues:

Through the summer of 2002, Abu Zubaydah continued to provide valuable information. Interrogators began to surmise that he was not a leader, but rather a helpful training camp personnel clerk who would arrange false documents and travel for jihadists, including Qaeda members.

He knew enough to give interrogators “a road map of Al Qaeda operatives,” an agency officer said. He also repeated talk he had heard about possible plots or targets in the United States, though when F.B.I. agents followed up, most of it turned out to be idle discussion or preliminary brainstorming.

At the time, former C.I.A. officials say, his tips were extremely useful, helping to track several other important terrorists, including Mr. Mohammed.

Ambiguity as to the possible role of torture persists here. Zubaydeh was captured on March 28, 2002. The memo authorizing the full package of techniques used on Zubaydeh is dated Aug. 1, 2002. The Times claims that he revealed information "throughout the summer." It also reports that after Zubaydah named KSM as the main organizer of the 9/11 plot to FBI agents,

A C.I.A. interrogation team that arrived a week or two later, which included former military psychologists, did not change the approach to questioning, but began to keep him awake night and day with blasting rock music, have his clothes removed and keep his cell cold.

It's agreed that Zubaydah provided information that helped to capture Khalid Shaikh Mohammed. And there's no dispute that he was eventually tortured. But when did techniques brought into his interrogation-in-progress by the CIA reach the level of torture, and what did Zubaydah suffer prior to revealing the information that led to KSM's capture?

It's important not to conflate Zubaydah's revealing KSM's role in the 9/11 attacks, which according to the Times happened before the CIA interrogators arrived, with the information he provided that "helped to track" other terrorists, including KSM (according to Mukasey and Hayden, by providing info leading to the capture of Ramzi bin al Shibh).

In short, these two apparently diametrically opposed accounts do not flat-out contradict each other.

4/22 UPDATE: Jane Mayer, citing the just-released Levin Report, adds this to the chronology:

By June 2002—again, months before the Department of Justice gave the legal green light for interrogations—an F.B.I. special agent on the scene of the interrogation of Abu Zubaydah refused to participate in what he called “borderline torture,” according to a D.O.J. investigation cited in the Levin report. Soon after, F.B.I. Director Robert Mueller commanded his personnel to stay away from the C.I.A.’s coercive interrogations.

Still unclear: did information gain by torture or "borderline torture" lead to the capture of Ramzi bin al Shibh and, by extension, Khalid Shaikh Mohammed?

It would be deeply gratifying to establish definitively that the torture of detainees yielded no valuable information. But Americans' rejection and prosecution of these acts may well have to integrate at least equivocal evidence that coercive interrogation sometimes yields actionable intelligence. We will have to accept that any information gained through torture is not worth the price -- that investing our government and military with complete power over the bodies of people held in custody is a greater threat to our society than terrorist attack.

Continued:
Did torture "work" is the wrong question - Ali Soufan shows why
Depends what your definition of "works" is

"Measuring him by the sentiment of his country..."

When I read those who lambast Obama for shrinking from investigation and prosecution of those who authorized torture, I essentially agree. The U.S. is bound by international and domestic law to prosecute torturers.

When I read those who take Obama and Geithner to task for coddling distressed or insolvent banks, I worry, though I'm really not qualified to judge.

Both charges, though, often bring to mind Frederick Douglass's assessment of Lincoln's gradual, calibrated, calculated move toward emancipation:

Viewed from the genuine abolition ground, Mr. Lincoln seemed tardy, cold, dull, and indifferent; but measuring him by the sentiment of his country, a sentiment he was bound as a statesman to consult, he was swift, zealous, radical, and determined.

I also think of FDR, moving the U.S. at what from Churchill's desperate perspective was glacial speed toward engagement in world war.

As a political general, Obama is meticulous about covering his flank. Put another way, in political warfare he subscribes to Powell's doctrine of overwhelming force. He has sixteen high-ranking officers stand behind him when signing the executive orders ending torture and preparing to close Guantanamo. He has Robert Gates to do the heavy lifting on deep cuts and a new approach to military procurement (Gates pretty much laid out what he wanted to do while Bush was still in office; Obama's political skill was more in choosing him that shaping his policy on this front). And while Obama to a degree exposed himself to backlash within the CIA by releasing the torture memos, the memos themselves may ultimately provide cover for the next steps in national catharsis. When prosecution of Bush Administration officials comes on Obama's watch, his stance will be more in sorrow than in anger. If major banks are nationalized, it will be (as Roubini suggested it must) when no one has any doubt that they are insolvent.

Glenn Greenwald, as fierce a critic as any Obama has on the civil liberties front, understands this dynamic in his own way and is more than willing to play his role, analogous (I would think) from his point of view to that of the abolitionists pushing Lincoln:

Criticisms directed at Obama and Holder for advocating immunity for CIA officials who relied in "good faith" on DOJ memos (a mere subset of the government criminals) is absolutely warranted. But, it is not Obama's sole responsibility -- or even his decision -- to prosecute. As a strictly legal matter, that is a decision for the Attorney General, independently, to make; it is Eric Holder who has the obligation to enforce the law, independent of anything Obama wants or says and regardless of what public opinion demands.

But more crucially, it is also the responsibility of the citizenry to demand that this happen. What Obama did yesterday -- whether by design or not -- provided the most potent tools yet to create the political pressure for prosecutions. As Kevin Drum makes clear, no decent human being reading those memos would be anything other than repelled by what was in them. Polls already found that large percentages of Americans, majorities even, favor investigations and/or prosecutions for Bush crimes. The onus is on those who believe in the rule of law to find ways to force the government to criminally investigate whether they want to or not (this petition demanding that Holder appoint a Special Prosecutor is a very good place to begin, though it will require much more than just petitions).

Andrew Sullivan, more prepared than Greenwald to invest personal faith in a leader, sees Obama playing "a long game":

I share Greenwald's deepening concern about Obama's concessions to the national security state. But I am not convinced there is no method to his meandering.

Obama understands he is the president, which means that he understands, unlike his overwhelmed predecessor, that he is the president of all Americans.

He knows that indictment and prosecution of the war criminals at the heart of the last administration would appear to those cocooned from the reality of what happened as an assault on American unity and stability. That proper concern has to be balanced against the gravity of the crimes, the profound nature of the constitutional claims that underpinned them, and the necessity to uphold the rule of law. And so a process whereby the president hangs back a little, allows the evidence to slowly filter out, releases memos that help prove to Americans that what was done was unequivocally torture and indisputably illegal ... is not to be despised.

I think Obama knows what happened; and he knows that, in the end, America will have to face it. He will not defend it, but he will not be the prosecutor either. It's the long game he knows. And it's the long game that will bring these people to justice.

Then too, those of us who believe that investigation and prosecution for torture have to happen need to exercise some imagination to recognize what we are asking for. Cheney's shameful charge that Obama is exposing the nation to terrorist attack by banning torture is just a foretaste of the rage that will be unleashed from still-powerful political forces when hearings and trials take place. Imagine that those trials go forward. And then imagine a successful major terrorist attack in the U.S. The country's mood could change in an instant. An authoritarian thug like Giuliani or a demagogic buffoon like Palin could be elected, and really end American civil liberties. Perhaps -- after, say, a nuclear terrorist attack -- there could even be a coup, though it's hard for me to imagine the intervening chaos, and any coup would have to circumvent the current military leadership.

That's why Obama is positioning himself to be pushed. That's why Democrats in Congress won't start investigations without some Republican support. It's not cowardice. It's a matter of building the overwhelming political support needed for a process that will be traumatic in itself and could be destabilizing if coupled with a major external shock.

Heart of Darkness

Andrew Sullivan on Bush Administration doublethink:

Looked at from a distance, the Bush administration wanted to do two things at once: to declare to the world that freedom is on the march, and huamn rights are coming to the world with American help, while simultaneously declaring to captives that the US has no interest in the law, human rights, accountability, transparency or humanity. They wanted to give hope to all the oppressed of the planet, while surgically banishing all hope from the prisoners they captured and tortured. And the only way they could pull this off is by the total secrecy they constructed and defended. So we had a public government respectful of the rule of law, and a secret government whose main goal was persuading terror suspects that there was no rule of law at all. It is hard to convey just how dangerous this was and is.

As the blogging cliche goes, read the whole thing. Also the newly released torture memos.

A "seam-ly" internal Administration debate resolved?

So this is how Obama divided the torture memo baby: 1) the memos are released; 2) CIA operatives who conducted the torture will not be prosecuted; and 3) the President asserts his right (in fact his "duty") "to vigorously maintain the classified nature of certain activities and information related to national security."

The seams of internal Administration debate show in Obama's Statement on the Memos, but in a good way. There is an implicit rebuttal of those who argued that releasing the memos would compromise national security, balanced by an implicit nod to those who argued to protect CIA operatives, and further balanced by the "reservation of rights" to withhold other documents cited above.

Note the weave back and forth between the opposed camps through the heart of the memo, and note that there's no "triangulation" here, just a sober balancing of powerful interests:

While I believe strongly in transparency and accountability, I also believe that in a dangerous world, the United States must sometimes carry out intelligence operations and protect information that is classified for purposes of national security. I have already fought for that principle in court and will do so again in the future. However, after consulting with the Attorney General, the Director of National Intelligence, and others, I believe that exceptional circumstances surround these memos and require their release.

First, the interrogation techniques described in these memos have already been widely reported. Second, the previous Administration publicly acknowledged portions of the program – and some of the practices – associated with these memos. Third, I have already ended the techniques described in the memos through an Executive Order. Therefore, withholding these memos would only serve to deny facts that have been in the public domain for some time. This could contribute to an inaccurate accounting of the past, and fuel erroneous and inflammatory assumptions about actions taken by the United States.

In releasing these memos, it is our intention to assure those who carried out their duties relying in good faith upon legal advice from the Department of Justice that they will not be subject to prosecution. The men and women of our intelligence community serve courageously on the front lines of a dangerous world. Their accomplishments are unsung and their names unknown, but because of their sacrifices, every single American is safer. We must protect their identities as vigilantly as they protect our security, and we must provide them with the confidence that they can do their jobs.

Note that Obama decided to protect the operatives -- not necessarily those who devised and approved the policies authorizing torture - though he did say

This is a time for reflection, not retribution. I respect the strong views and emotions that these issues evoke. We have been through a dark and painful chapter in our history. But at a time of great challenges and disturbing disunity, nothing will be gained by spending our time and energy laying blame for the past.

I would have to disagree with him there. The United States is required by law - international and domestic - to prosecute those who authorized torture. We will see how the Adminstration handles this duty over the long haul.

The end of money management as we know it?

At Investorside's Independents' Day conference of independent research providers on April 8, Suzanne Duncan of the IBM Institute for Business Value reported some startling results from a study of the current state and likely future of the financial industry. Undertaken jointly with the Economist Intelligence Unit and the CFA Institute, and surveying 848 financial markets executives worldwide and 107 of their corporate clients, the study found:

• 70% of the institutions' corporate clients said that their providers put their own interest first, not their clients'. 60% of industry executives surveyed admitted to the same thing.
  
  
• Only 10% of hedge funds deliver alpha -- that is, do what they're paid to do.
  
  
• Within twenty years, 85--90% of assets under management will be invested in passive instruments such as index funds.

That last forecast (if correct) means pretty much that the money management business as we know it is going to evaporate --though Ms. Duncan, asked what the near-end of active investing meant for the analysts filling the room, did suggest that there would be demand for research (and presumably advice) in asset allocation.

I asked Ms. Duncan: if 85-90% of funds are passively managed, who's going to set prices? She said that academics who have made even more radical forecasts have suggested that price discovery can be adequately handled by those managing just 5% or even less of total assets.

Personally, I'm all for index investing. I've always suspected that 90% of hedge funds were frauds, and that only the best-endowed institutional investors, such as the the top Ivies, had both the acumen and the financial clout to get into the relative handful of truly effective hedge funds under favorable terms. But as Jonathan Clements, the former Wall Street Journal personal finance columnist and evangelist for index investing (now Director of Financial Guidance for Citi's fee-only MyFi advisory service) once wrote, those of us who invest in index funds and other passive vehicles are parasites in a sense, profiting from the collective wisdom of active managers without paying for it. Though I'm not qualified to judge, it strikes me as dangerous to have multi-trillion dollar markets depend for price discovery on the active investment decisions of those managing a tiny fraction of the total assets.

2029: Look back in wonder

Sometimes I think I'll look back on all the posts hearting Obama's speeches and think, 'what a sap, to have pored over a politician's promises and prescriptions as if they're holy writ.'

Other times, I think I'll be glad to have been there and watching at a time when democracy became democracy.

When we elected a leader who spoke to the electorate as adults, and told us what he was going to do and why, and why he wasn't going to do what his critics said he should do.

Yesterday, when I read the speech on the economy that Obama delivered at Georgetown, was one of those times.

There were no tricks, unless you consider explaining complex economic forces in terms an attentive elementary school student could understand a trick. Only clarity, complexity, transparency and -- given the length of ground covered -- brevity.

When we look back at the presidency, regardless of outcome, we will remember what Obama did to elevate our public discourse:

1. He spoke to us as adults regardless of educational level. As in this capsule of Keynes:

To begin with, economists on both the left and right agree that the last thing a government should do in the middle of a recession is to cut back on spending. You see, when this recession began, many families sat around their kitchen table and tried to figure out where they could cut back. So do many businesses. That is a completely responsible and understandable reaction. But if every family in America cuts back, then no one is spending any money, which means there are more layoffs, and the economy gets even worse. That's why the government has to step in and temporarily boost spending in order to stimulate demand. And that's exactly what we're doing right now.

And this explanation of why he is increasing spending in key areas in the face of enormous deficits:

Just as a cash-strapped family may cut back on luxuries but will insist on spending money to get their children through college, so we as a country have to make current choices with an eye on the future. If we don't invest now in renewable energy or a skilled workforce or a more affordable health care system, this economy simply won't grow at the pace it needs to in two or five or ten years down the road.

And this diagnosis of the unsustainable economic fundamentals exposed by the financial crisis:

It is simply not sustainable to have a 21st century financial system that is governed by 20th century rules and regulations that allowed the recklessness of a few to threaten the entire economy. It is not sustainable to have an economy where in one year, 40% of our corporate profits came from a financial sector that was based too much on inflated home prices, maxed out credit cards, overleveraged banks and overvalued assets; or an economy where the incomes of the top 1% have skyrocketed while the typical working household has seen their income decline by nearly $2,000.

2. He explained why he was doing something unpopular:

Now, what we've also learned during this crisis is that our banks aren't the only institutions affected by these toxic assets that are clogging the financial system. A.I.G., for example, is not a bank. And yet because it chose to insure trillions of dollars worth of risky assets, its failure could threaten the entire financial system and freeze lending even further. This is why, as frustrating as it is – and I promise you, nobody is more frustrated than me – we've had to provide support for A.I.G. It's also why we need new legal authority so that we have the power to intervene in such financial institutions, just like a bankruptcy court does with businesses that hit hard times, so that we can restructure these businesses in an orderly way that does not induce panic – and can restructure inappropriate bonus contracts without creating a perception that government can just change compensation rules on a whim.

Compare, btw, his defense of the bank bailout in debate with McCain.

3. He addressed critics from both sides of an issue without setting up any straw men. For example, on shoring up banks without (yet) nationalizing them:

And although there are a lot of Americans who understandably think that government money would be better spent going directly to families and businesses instead of banks – "where's our bailout?," they ask – the truth is that a dollar of capital in a bank can actually result in eight or ten dollars of loans to families and businesses, a multiplier effect that can ultimately lead to a faster pace of economic growth.

On the other hand, there have been some who don't dispute that we need to shore up the banking system, but suggest that we have been too timid in how we go about it. They say that the federal government should have already preemptively stepped in and taken over major financial institutions the way that the FDIC currently intervenes in smaller banks, and that our failure to do so is yet another example of Washington coddling Wall Street. So let me be clear – the reason we have not taken this step has nothing to do with any ideological or political judgment we've made about government involvement in banks, and it's certainly not because of any concern we have for the management and shareholders whose actions have helped cause this mess.

Rather, it is because we believe that preemptive government takeovers are likely to end up costing taxpayers even more in the end, and because it is more likely to undermine than to create confidence. Governments should practice the same principle as doctors: first do no harm. So rest assured – we will do whatever is necessary to get credit flowing again, but we will do so in ways that minimize risks to taxpayers and to the broader economy.

4. He granted that 'the other side may sometimes have a point':

Some have argued that we shouldn't attempt such a transition until the economy recovers, and they are right that we have to take the costs of transition into account. But we can no longer delay putting a framework for a clean energy economy in place. If businesses and entrepreneurs know today that we are closing this carbon pollution loophole, they will start investing in clean energy now.

5. He demolished unserious, anecdotal, purely political attacks on his program:

Third, the problem with our deficit and debt is not new. It has been building dramatically over the past eight years, largely because big tax cuts combined with increased spending on two wars and the increased costs of government health care programs. This structural gap in our budget, between the amount of money coming in and the amount going out, will only get worse as Baby Boomers age, and will in fact lead us down an unsustainable path. But let's not kid ourselves and suggest that we can do it by trimming a few earmarks or cutting the budget for the National Endowment for the Arts.

All together now: why is John McCain not President?

6. He acknowledged pain to come and focused attention on the long-term:

This is all welcome and encouraging news, but it does not mean that hard times are over. 2009 will continue to be a difficult year for America's economy. The severity of this recession will cause more job loss, more foreclosures, and more pain before it ends. The market will continue to rise and fall. Credit is still not flowing nearly as easily as it should. The process for restructuring AIG and the auto companies will involve difficult and sometimes unpopular choices. All of this means that there is much more work to be done. And all of this means that you can continue to expect an unrelenting, unyielding, day-by-day effort from this administration to fight for economic recovery on all fronts.

7. He explained the interdependence of the "pillars" of his economic plan, implicitly arguing that the edifice would be at risk if any of those pillars were pulled. To do so, he followed his established practice -- and stated ground rules -- for bringing faith into the public square: deriving authority from Biblical metaphor, but only in terms that appeal to universal values (see: The Gospel according to Obama). He thus implicitly cast his program as God's work without claiming any authority other than assent to his reasoning:

There is a parable at the end of the Sermon on the Mount that tells the story of two men. The first built his house on a pile of sand, and it was destroyed as soon as the storm hit. But the second is known as the wise man, for when "…the rain descended, and the floods came, and the winds blew, and beat upon that house…it fell not: for it was founded upon a rock."

We cannot rebuild this economy on the same pile of sand. We must build our house upon a rock. We must lay a new foundation for growth and prosperity – a foundation that will move us from an era of borrow and spend to one where we save and invest; where we consume less at home and send more exports abroad.

It's a foundation built upon five pillars that will grow our economy and make this new century another American century: new rules for Wall Street that will reward drive and innovation; new investments in education that will make our workforce more skilled and competitive; new investments in renewable energy and technology that will create new jobs and industries; new investments in health care that will cut costs for families and businesses; and new savings in our federal budget that will bring down the debt for future generations. That is the new foundation we must build. That must be our future – and my Administration's policies are designed to achieve that future.

An implicit appeal: would you knock out one or more pillars of this foundation? Would you pick and choose precepts from the Sermon on the Mount?

8. He identified the core long-range economic challenge facing the United States. This pivots off his dismissal, cited above, of the earmark shibboleth:

Along with defense and interest on the national debt, the biggest costs in our budget are entitlement programs like Medicare, Medicaid, and Social Security that get more and more expensive every year. So if we want to get serious about fiscal discipline – and I do – then we are going to not only have to trim waste out of our discretionary budget, a process we have already begun – but we will also have to get serious about entitlement reform.

Nothing will be more important to this goal than passing health care reform that brings down costs across the system, including in Medicare and Medicaid. Make no mistake: health care reform is entitlement reform. That's not just my opinion – that was the conclusion of a wide range of participants at the Fiscal Responsibility Summit we held at the White House in February, and that's one of the reasons why I firmly believe we need to get health care reform done this year.

Once we tackle rising health care costs, we must also work to put Social Security on firmer footing. It is time for both parties to come together and find a way to keep the promise of a sound retirement for future generations. And we should restore a sense of fairness and balance to our tax code by shutting down corporate loopholes and ensuring that everyone pays what they owe.

9. He defined leadership as he enacted it - returning to his oldest campaign theme, that we can't effectively reform policy without reforming our politics:

This brings up one final point I'd like to make today. I've talked a lot about the fundamental weakness in our economy that led us to this day of reckoning. But we also arrived here because of a fundamental weakness in our political system.

For too long, too many in Washington put off hard decisions for some other time on some other day. There's been a tendency to score political points instead of rolling up sleeves to solve real problems. There is also an impatience that characterizes this town – an attention span that has only grown shorter with the twenty-four hour news cycle, and insists on instant gratification in the form of immediate results or higher poll numbers. When a crisis hits, there's all too often a lurch from shock to trance, with everyone responding to the tempest of the moment until the furor has died away and the media coverage has moved on, instead of confronting the major challenges that will shape our future in a sustained and focused way.

This can't be one of those times. The challenges are too great. The stakes are too high. I know how difficult it is for Members of Congress in both parties to grapple with some of the big decisions we face right now. It's more than most congresses and most presidents have to deal with in a lifetime.

But we have been called to govern in extraordinary times. And that requires an extraordinary sense of responsibility – to ourselves, to the men and women who sent us here, and to the many generations whose lives will be affected for good or for ill because of what we do here.

This is one of Obama's oldest themes. It's remarkable to look back and consider the resonances it's picked up, as two years of political attack have bounced off him, and as his standing call to engage policy seriously ran head-on into a world economic crisis. It tacks back to his engagment with serious and frivolous criticism throughout the speech. It resonates because he has led by example, teaching us how to debate policy in the public sphere.

From the Ministry of Love

Andrew Sullivan, on how Bush's inner circle came to embrace torture:

It is as if neoconservatism came to believe that American exceptionalism also means that America, by virtue of its unique virtue, is uniquely empowered to commit evil and somehow thereby render it good.

Cf. Rudolph Giuliani, upon being told that his friend Michael B. Mukasey, Bush's nominee for Attorney General, said he wasn't sure whether waterboarding is torture (Oct. 25, 2007):

Well, I’m not sure it is either. I’m not sure it is either. It depends on how it’s done. It depends on the circumstances. It depends on who does it .

And George Bush: "we do not torture."

And finally, the the Table of Contents of the "ICRC Report On the Treatment of Fourteen 'High Value Detainees' in CIA Custody":

Introduction
1. Main Elements of the CIA Detention Program
1.1 Arrest and Transfer
1.2 Continuous Solitary Confinement and Incommunicado Detention
1.3 Other Methods of Ill-treatment
1.3.1 Suffocation by water
1.3.2 Prolonged Stress Standing
1.3.3 Beatings by use of a collar
1.3.4 Beating and kicking
1.3.5 Confinement in a box
1.3.6 Prolonged nudity
1.3.7 Sleep deprivation and use of loud music
1.3.8 Exposure to cold temperature/cold water
1.3.9 Prolonged use of handcuffs and shackles
1.3.10 Threats
1.3.11 Forced shaving
1.3.12 Deprivation/restricted provision of solid food
1.4 Further elements of the detention regime [cont.]

"We do not torture." As in, "when we do it, it's not torture."