Scandal of the Ages - O-My

The Scandal of Our Age

Posted By Victor Davis Hanson On June 17, 2012 

Like Nothing Before

In the Watergate scandal, no one died, at least that we know of. Richard Nixon tried systematically to subvert institutions. Yet most of his unconstitutional efforts were domestic in nature — and an adversarial press ^[1] soon went to war against his abuses and won, as Congress held impeachment hearings.

As far as national security went, Nixon’s crimes were in part culpable for destroying the political consensus that he had won in 1972, at a critical time when the Vietnam War to save the south was all but over, and had been acknowledged as such at the Paris Peace Talks. But Watergate and the destruction of Nixon’s foreign policy spurred congressional cutbacks of aid to South Vietnam and eroded all support for the administration’s promised efforts to ensure that North Vietnam kept to its treaty obligations.

Iran-Contra was as serious because there was a veritable war inside the Reagan administration over helping insurgents with covert cash that had in part been obtained by, despite denials, selling arms to enemy Iran to free hostages — all against U.S. laws and therefore off the radar. The Reagan administration was left looking weak, hypocritical, incompetent, and amoral — and never quite recovered. Yet even here the media soon covered the story in detail, and their disclosures led to several resignations and full congressional hearings.

Quite Different

What I call “Securitygate” — the release of the most intricate details about the cyber war against Iran, the revelations about a Yemeni double-agent, disclosures about covert operations in and against Pakistan, intimate details about the Osama bin Laden raid and the trove of information taken from his compound, and the Predator drone assassination list and the president’s methodology in selecting targets — is far more serious than either prior scandal. David Sanger and others claim that all this was sort of in the public domain anyway; well, “sort of” covers a lot of ground. We sort of knew about the cyber war against Iran, but not to the detail that Sanger provides and not through the direct agency of the Obama administration itself.

Here is the crux of the scandal: Obama is formulating a new policy of avoiding overt unpopular engagements, while waging an unprecedented covert war across the world. He’s afraid that the American people do not fully appreciate these once-secret efforts and might in 2012 look only at his mishaps in Afghanistan or his public confusion over Islamic terror. Ergo, feed information to a Sanger or Ignatius so that they can skillfully inform us, albeit with a bit of dramatic “shock” and “surprise,” just how tough, brutal, and deadly

Barack Obama really is.

Yet these disclosures will endanger our national security, especially in the case of a soon-to-be-nuclear Iran. They will probably get people killed or tortured, and they will weaken America’s ability for years to work covertly with allies. Our state-to-state relations will be altered, and perhaps even the techniques and technology of our cyber and special operations wars dispersed into the wrong hands. There is nothing in the recent “exclusive” writings of David Sanger or David Ignatius that was necessary for the American people to know at this stage, unless one thinks that we had a right to the full story of the Doolittle Raid in 1942, or that Americans by July 1944 needed an insider account of the date and planning of D-Day, or that we should have been apprised about what was really going on in New Mexico in 1944.

Here is why Securitygate is a national outrage and goes to the heart of a free and civil society.

National Security


Iran probably knew of U.S. covert involvement against its nuclear facilities, but now it knows that that the entire world also knows. There is no more plausible deniability on our part. The information about the nature of the cyber war is so detailed, the partnership with the Israelis rendered so complex, and the disclosures about technology and technique so explicit, that the Iranians will not only better defend themselves, but use these details to encourage and support even more terror against the United States. How ironic that Obama once called Guantanamo al-Qaeda’s “chief recruiting tool” only to keep it open, and instead give them a real recruiting tool in the disclosure of the inner workings of the war on terror.

Pakistan is a veritable enemy and Iran an explicit one. But now both will recite endlessly David Sanger’s catalog of our efforts to subvert them, and claim any new anti-American efforts on their part were simply justified tit-for-tat. Why would the Gulf states help us, when they come off as brutal supporters of the old doomed dictatorships? Europe and our allies no doubt knew all about predators and the cyber war, but their publics did not. Expect even more anti-Americanism, as our enemies decry targeted assassinations and efforts at subverting governments.
 
George W. Bush turned off the world by waterboarding three known and confessed terrorists — with help from the American Left who publicized that fact hourly for eight years. Barack Obama, we now read, has not only personally selected several hundred suspected terrorists for airborne execution, but alternates between reading their terrorist biographies and theology as he picks who lives and who dies. I am sure Catholic theologians appreciate the fact that St. Thomas Aquinas and St. Augustine bulked up the American president’s fortitude when he chose to press the kill button over Waziristan. Crude presidents watch Patton or wear flight suits under “Mission Accomplished” banners; sophisticated metrosexual wartime Presidents read theology. I am surprised only that we did not hear from leaks that Obama had read these didactic texts in the original Latin.

Is the world to be outraged that Russia sends war material to Syria or Iran arms to Hezbollah — when it matter-of-factly now reads that almost all communications inside Pakistan are intercepted? Do we need to know that the U.S. warped medical vaccination programs to gain information about bin Laden — right out of a scene from the film Man on Fire ^[2]? I bet the Gates Foundation and other American philanthropic organizations will appreciate the doubt that will now be cast on their own vaccination efforts. In the world war of ideas, we accuse Iran of wanting to wipe out Israel and they now will accuse us of resorting even to manipulating vaccination programs for the sick and poor for our own national security.  Do we really need to know — or rather does the world need to know — that we sabotaged video cameras in Pakistan? Wait — I err in the use of the past tense: we are still sabotaging video and photographic equipment in Pakistan.
We live in dangerous times, with a war in Afghanistan, a soon-to-be-nuclear Iran, a duplicitous nuclear Pakistan, an estranged nuclear ally Israel, an Arab Spring gone haywire, a failed reset with Russia, and almost all of the above conniving over Syria. The work of National Security Advisor Tom Donilon, New York Times reporter David Sanger, and all their assorted subordinate reporters and Obama administration officials may well help to set off a conflagration unlike any in our time.

The Timing and Theme


Why are we suddenly learning in spring of 2012 of all sorts of classified information about the administration’s war on terror? Why not in 2009? Why is all the disclosed information in the press predictably designed to offer another side of Barack Obama in an election year? The president turns out not to be the familiar senator or presidential candidate Obama, who once demanded that Guantanamo be shut down, who mocked renditions and tribunals, who opposed preventative detentions, who wanted to try Khalid Sheikh Mohammed in a civilian court, and whose team characterized the Major Hasan murders as workplace violence and the Mutallab plot as “allegedly” or came up with the laughable euphemisms “overseas contingency operations” and “man-caused disasters.”

In other words, all the prior public knowledge of the Obama administration’s conduct of the war on terror had helped contribute to real public worries about its national security reliability. In contrast, all the recent disclosures paint a much different picture of the real “Obama Doctrine” — a Nobel Peace Prize laureate reading his St. Thomas Aquinas as he struggles with blowing up bad guys from the air, takes out bin Laden, unleashes a cyber war against Iran, or sends his agents into Yemen. A Hollywood scriptwriter could have done Obama the “paradox” no better: ruthlessly sensitive, decisively reflective, and tragically underappreciated.

The decision to disclose a multifaceted covert war on terror and ensure the continuance of the administration Barack Obama is supposedly far more important to our long-term national security than is any short-term damage that follows these disclosures.

The Role of the Press

We all know how the deplorable practice of “leaking” works. But in truth, these were not quite leaks: information was not “leaked” by rogue insiders or hostile outsiders, but rather given freely to the press by administration officials.

That fact alone makes Securitygate different from any other past scandal over publicized classified documents or insider accounts of covert operations — or even Bob Woodward’s mythography and insider psychodramas, where he only imagines what presidents and secretary of states are “really” thinking silently to themselves.

Usually liberal reporters nurture and stroke unnamed sources and would-be whistle-blowers who claim worry about an administration’s stealthy and dangerous national security efforts. Sometimes they divide and conquer — warning reluctant sources that when the proverbial stuff hits the fan, their own silent narratives will be drowned out by the connivers who squawked. Message? If you can’t beat them, then beat them to the punch.


When the leaked story goes public, the administration in question goes bananas; after all, its most private protocols and operations are rendered worthless as they enter the public domain. Our Woodstein-like reporters ^[3] in question predictably fancy themselves Edward R. Murrows, as if speaking truth to power. They earn praise from the New York-Washington, D.C., corridor, with all the accruing beneficia of strong book sales, career promotions, TV appearances, or often prizes for their “courage.” The leaker, if found out, often likewise is canonized, in Daniel Ellsberg fashion, as he usually beats the rap.
None of that was true of the released information about the bin Laden mission, subversion in Pakistan, the Yemeni double agent, the

Predator drone protocols, and the cyber war against Iraq, or our covert war in Africa. The press were lapdogs, not bull terriers. The leakers were not misguided whistle-blowers, but careerist insiders. We don’t quite have an investigative press these days, but rather a Ministry of Truth put in charge of Barack Obama’s public relations: when the worldwide Left worries that Obama is too militaristic, we heard of deep engagement with Catholic theologians and a desire to go after former CIA agents, or more plans to close Guantanamo; when the Right is up in arms that Obama is not pursuing Islamic terrorists, then the drone tally, cyber war, and more details about Osama bin Laden suddenly are all over the news.

Complicity not skepticism is the theme of the work of a Sanger or Ignatius and their kindred reporters. Their aim is that we should be “surprised” about just how muscular is the Obama version of the war on terror — an appreciation that is especially timely in mid-2012, rather than, say, 2009 or 2010.

Doubt all that? The subtitle of David Sanger’s book – Surprising Use of American Power ^[4] – says it all, does it not? “Surprising” is a rather mild adjective that one might not usually expect from a New York Times “investigative” reporter hell-bent on rushing into print leaked material about controversial, legally questionable, and covert U.S. operations. “Surprising” is the sort of loaded adjective that reminds us of the press’s other favored word – “unexpectedly” ^[5] – when citing the latest dismal economic news.

Cui Bono?

But outrage was not the intent of Sanger, nor of any of the other “reporters” who have been given exclusive access to either Obama administration insiders or once sort of, now kind of, classified materials. When one reads David Ignatius on the covert bin Laden raid, here are the sort of inanities that pop out: “This desire to reattach al-Qaeda to the Muslim mainstream is evident in the documents I reviewed that were taken from bin Laden’s compound ^[6] the night he was killed. … As Wednesday’s anniversary of bin Laden’s death ^[7] approaches, I have been going back over my notes of these messages. I found some unpublished passages that show how bin Laden’s legacy is an ironic mix.” Or “The scheme is described in one of the documents taken from bin Laden’s compound ^[8] by U.S. forces on May 2, the night he was killed. I was given an exclusive look at some of these remarkable documents by a senior administration official. They have been declassified and will be available soon to the public in their original Arabic texts and translations.”

How does one seriously claim an “exclusive look” at “remarkable documents” that have been “declassified” and “will be available soon.”  (Note the tense gymnastics.) Either a document is in the public domain for all, or it is not. One does not have an “exclusive” look at otherwise common knowledge. This is incoherent: “A senior administration official” calls up a senior Washington Post reporter to provide him with an “exclusive” look at unclassified documents in the public domain. Why would a “senior” official have to remain unnamed when all he was doing was passing along unclassified information?

What Next?

What should we expect next from the administration rather pleased at these disclosures? More of  “how dare you!” denials from Barack Obama who is “shocked” that we might possibly conclude that he runs the defense of the United States like a poorly managed Tony Rezko land deal.

Expect the New York Times and Washington Post stable to likewise be aghast at any hint they were massaged, and in vain to point to all sorts of nuanced little qualifiers in their stories that we missed, but that really do prove their own independence and “worry,” “skepticism,” and “concern” over some of the shocking things they wrote.

“Classified” is now a postmodern idea, as we see from Ignatius. I think the damage-control procedure will go like this: although we, the public, could not read what the New York Times and Washington Post people read, these “classified” sources were still not really classified. You see, the president decides from moment to moment what is legally classified, what not. When given to a reporter to ensure the public knows that an Achilles rather than a Paris is our commander in chief, the documents in a nanosecond became declassified. In other words, once these leaks go into print, then immediately postfacto all such information was declassified all along: stupid us, we just never asked to read it or talk with these folks who had.

If — a big if — and when either Congress or the media goes after the damage that was done to U.S. interests, expect that almost every subpoenaed source imaginable is now “classified” — as in “How dare you ask for classified information that might endanger the national security just to find out how and why we released ‘declassified’ information that did no harm at all.”

Reader, forget politics. Just digest the nature, theme, the timing, and the damage of these disclosures. Do that and most of you will conclude they are offenses to the security of the United States — or, in the words of Barack Obama on another matter ^[9], “unpatriotic.”

O's $23 bln Gift to UAW

Auto Bailout? More Like a $23 Billion Gift to the UAW

 Posted 06/15/2012 07:11 PM ET

Bailouts: In speech after speech, President Obama credits himself for saving the Detroit auto industry. Turns out that what Obama really did was spend $23 billion in taxpayer money to pay off his union friends.

Obama's big point of pride these days is that he didn't "let Detroit go bankrupt" and that due to his efforts, "not only did we save the auto industry, but we're actually seeing better cars made" and Detroit carmakers are "on top of the world once again."

On the surface, it seems to be true. Obama did up the bailout ante that President Bush started in 2008. And Detroit carmakers are doing better these days. In May, GM announced a $1 billion profit in Q1 2012, and Chrysler announced bigger-than-expected profit for the first three months of the year.

But the reality is even without the bailouts, GM and Chrysler likely would have survived. They just would have gone through normal bankruptcy proceedings — which many still-existing large firms have done before.

In the case of GM, at least, "in all likelihood, this reorganization would have produced a company more competitive than the one that emerged from the bailout process," wrote Todd Zywicki, professor at George Mason University School of Law, in National Affairs. Instead, Obama put together "a bankruptcy combined with a bailout, incorporating the worst elements of both."
Even if you think the bailout was needed, the ultimate taxpayer cost was far higher than it should have been, according to a new report by Zywicki and James Sherk, published by the Heritage Foundation.

Worse, the entire $23 billion price tag — an estimate from Obama's own Treasury Dept. — went to subsidize the Democrat-friendly UAW, the authors found.

Among the union giveaways:
 
• $21 billion more for the UAW retiree benefit trust fund than it would have received had it been treated like other unsecured creditors.
• Another $1 billion to restore pensions for UAW retirees at GM's defunct Delphi subsidiary.
• And the UAW didn't have to make wage concessions that a normal bankruptcy proceeding would have required. Cost to taxpayers: $4 billion.

"Had the administration required the UAW to accept standard bankruptcy concessions," they concluded, "the government could have executed the bailout at no net cost to taxpayers."

Obama's former car czar, Ron Bloom, wasn't kidding when he said of the bailout: "I did this all for the unions."

O's Story

• June 15, 2012, 6:04 p.m. ET

The Hidden Obama

A young man more introspective than ambitious, the future president took a long time to choose a direction in life.

By Jonathan Karl

Republicans often criticize Barack Obama for his lack of experience in the business world. As Mitt Romney puts it: "The president's a nice guy, but he's never had a job in the private sector." That's not quite true. After all, Mr. Obama met the future first lady while working in the Sidley Austin law firm in Chicago. And right after graduating from Columbia University, he put his bachelor's degree to work at a place called Business International Corp. in midtown Manhattan.

   Getty Images/Contour/Lisa Jack

Barack Obama in 1980, when 'Barry,' who turned 19 that year, was a student at Occidental College in Los Angeles.

The job at Business International wasn't exactly like running Bain Capital—Mr. Obama was paid an $18,000 salary to help to write and edit newsletters for American companies doing business overseas—but it was a private-sector job. And the young Barack Obama hated it. As he wrote in his memoir, "Dreams From My Father" (1995): "Sometimes, coming out of an interview with Japanese financiers or German bond traders, I would catch my reflection in the elevator doors—see myself in a suit and tie, a briefcase in my hand—and for a split second I would imagine myself as a captain of industry, barking out orders, closing the deal, before I remembered who it was that I wanted to be and felt pangs of guilt for my lack of resolve."

Barack Obama: The Story

By David Maraniss
Simon & Schuster, 641 pages, $32.50

Mr. Obama lasted only a year, fulfilling his initial commitment and not a day more. When he went in to the company's vice president, Lou Celi, to tell him he would be leaving and didn't know what he would be doing next, Mr. Obama got a lecture on career planning. "He just seemed not exactly clear of what he wanted to do," Mr. Celi recounted, decades later, in an interview for David Maraniss's "Barack Obama: The Story." "I told him he might be making a mistake, leaving a job when he did not have any plans except a vague notion that he maybe would do some public sector work." Mr. Ceci had no way of knowing that the person ignoring his career advice was a future president of the United States.

Mr. Maraniss's 641-page opus is an exhaustively reported journey through Mr. Obama's early past—a past that, until now, has been little explored despite David Remnick's 2010 biography of Mr. Obama and Janny Scott's 2011 biography of his mother. "Barack Obama: The Story," the first volume in what will supposedly be a multivolume biography, begins long before he is born—and, yes, just to be certain, Mr. Maraniss interviews people who worked on the maternity ward when Mr. Obama's mother gave birth to him in Honolulu in 1961—and ends when he is accepted into Harvard Law School in 1988.
Mr. Maraniss tracks down Mr. Obama's family history—his mother's side of the family in Kansas, his father's in Kenya—and interviews relatives, friends and acquaintances. He traces Mr. Obama's footsteps from Hawaii to Indonesia to college in California and New York and his first visit to his father's Kenyan homeland. The author finds the words "Obama" etched in a cement sidewalk at his old high school in Hawaii, the work of a schoolmate who was trying to make trouble for Barry, as he was then known. Mr. Maraniss unearths Mr. Obama's long letters to one girlfriend and the diaries of another. "Barack Obama: The Story" is a careful, thorough account in which the author treats his subject with sympathy but not reverence. The result is an admiring portrait, to be sure, but some of the details that Mr. Maraniss discovers raise questions about the carefully crafted story that Mr. Obama has told about himself.

As we know, Mr. Obama has a family background entirely unlike that of any other U.S. president. Mr. Maraniss describes Mr. Obama's charismatic great-grandfather, Obama Opiyo, who had five wives, two of whom were sisters, and his grandfather, Hussein Onyango, who was a convert to Islam and who also had five wives. If Mr. Obama's charisma came from this side of his family, his calm, cool demeanor did not. Mr. Obama's grandfather, Mr. Maraniss writes, "had a reputation for pummeling enemies with his fists, smacking children who did not show proper manners at the dinner table, and beating women who failed to meet his standards, including his five wives."

When Mr. Obama's father—Barack Hussein Obama Sr.—came from Kenya to study at the University of Hawaii in 1959 (with the help of Christian missionaries), he left behind a young daughter and a pregnant wife. The elder Obama immediately became a striking figure on campus who excelled academically, making Phi Beta Kappa and eventually earning a fellowship to Harvard. Mr. Maraniss says that Obama Sr. "had a captivating voice, a mesmerizing presence, and a certainty that he was correct, and a love of argument." But when he married a pregnant 18-year-old named Stanley Ann Dunham (her unusual first name inspired by a Bette Davis movie about two sisters named Stanley and Roy), the Immigration and Naturalization Service demanded to know how he could get married when he had said on his visa application that he already had a wife back in Kenya.

The elder Barack Obama got out of that mess by claiming that he had divorced his Kenyan wife, but Mr. Maraniss says that he never bothered to divorce his first wife and probably never told her about his new marriage. And he was ill-prepared to be a father to the younger Barack Obama, born six months later. Just a month after he was born, Mr. Obama's mother left his father because, Mr. Maraniss speculates, he had become abusive. He moved on to Harvard, where he married another woman—and abused her, once holding a knife to her throat.

For Mr. Obama's early years, much of what the world knows up to this point comes from his "Dreams From My Father," published years before he ran for political office. Mr. Maraniss finds the book to be an unreliable guide to what actually happened in Mr. Obama's early life. The book, he says, "falls into the realm of literature and memoir, not history and autobiography." This is not a complete surprise: In the book's introduction, the author acknowledges taking liberties—changing names and chronology and compressing multiple people into single characters for the sake of narrative flow and dramatic effect.

Consider Mr. Obama's own description of his time working at Business International and those meetings with "Japanese financiers" and "German bond traders" and that reflection in the elevator mirrors of himself wearing a suit and tie. In reality, Mr. Maraniss finds out, Mr. Obama worked out of a tiny office barely large enough to fit a desk, dressed casually and didn't have meetings with financiers or bond traders. "The part about seeing his reflection in the elevator doors?" recalled one supervisor. "There were not reflections there. . . . He was not in this high, talk-to-Swiss-bankers kind of role. He was in the back rooms checking things on the phone."

In the memoir, Mr. Obama's experience at Business International, mentioned only briefly, is used as a device to portray a great temptation—he is almost seduced by the allure of a business career that would have forced him to sell his soul. The reality discovered by Mr. Maraniss is less dramatic but reveals Mr. Obama's state of mind. He was an efficient worker and an aloof colleague. Unlike many of his young co-workers, he never arrived at work late—and never stayed late. He did what the job required, "no more and no less." When one co-worker, knowing that Mr. Obama was a runner, suggested that they jog together after work, Mr. Obama declined, saying: "I don't jog, I run." It appears that he was simply biding time in a world he did not like. In a letter found by Mr. Maraniss, Mr. Obama's mother wrote a friend: "He calls it working for the enemy because some of the reports are written for commercial firms that want to invest in [Third World] countries."

Elsewhere, Mr. Maraniss finds that Mr. Obama's memoir "accentuates characters drawn from black acquaintances who played lesser roles in his real life but could be used to advance a line of thought, while leaving out or distorting the actions of friends who happened to be white." And so Mr. Obama wrote of commiserating with a fellow African-American in high school over the fact that white girls would not date either of them when, in reality, neither had a problem dating white girls and the friend was half-Japanese and had a black grandfather. And Mr. Obama wrote in the memoir of being denied a starting role on his Hawaiian high-school basketball team—which went on to win the state championship—because of his "black" style of play. Mr. Maraniss discovered the real reason: "He was one of the few players on the team who could not jump high enough to dunk the ball."

Mr. Obama's memoir recounts lots of pot smoking in his high-school days, and Mr. Maraniss gets the details—again, exhaustively. Barry Obama and his buddies formed what they called "the Choom Gang." In this case, "choom" is a verb meaning to smoke pot. And they seemed to smoke it everywhere—especially when driving around Hawaii in a VW microbus they called the Choomwagon.

One night they tried a little drag racing, pitting the Choomwagon against a friend's Toyota on a road snaking up Honolulu's Mount Tantalus. Mr. Obama was in the Toyota. The Choomwagon made it to the top first. When the other car didn't show up, the kids in the Choomwagon went looking for the Toyota. "On the way down," Mr. Maraniss writes, "they saw a figure who appeared to be staggering up the road. It was Barry Obama. What was going on? As they drew closer, they noticed that he was laughing so hard he could barely stand up." His friend driving the Toyota, it turned out, had rolled the car. Fortunately, nobody was hurt. Everyone avoided trouble by leaving the driver alone to deal with the police. It was, for Mr. Obama, a near miss, the kind of incident that might have ended badly, with injury or legal trouble or both.

In his high-school yearbook, in a section where students were supposed to record their gratitude to those who had helped along the way, Mr. Obama wrote: "Thanks Tut,"—his grandmother—"Gramps, Choom Gang, and Ray for all the good times." Mr. Maraniss notes: "Ray was the older guy who hung around the Choom Gang, selling them pot. A hippie drug dealer made his acknowledgments; his mother did not."

As Mr. Obama heads off to college, first at Occidental in Los Angeles and then at Columbia in New York, there is more studying, less pot and a lot of writing—journals and letters to a girlfriend filled with adjective-laden descriptions of what he sees in New York that read as if he is practicing to write a novel. He gives his first political speech at Occidental—two minutes deploring apartheid in South Africa—but spends more time on personal introspection than political activism.

The years at Columbia in particular are something of an enigma in the Obama story, barely mentioned in "Dreams From My Father" and sometimes called his dark years. Mr. Obama's first roommate at Columbia compared him to the main character in Walker Percy's novel "The Moviegoer," "where you're not participating in life but you're kind of observing, one step behind." He was a member of the school's Black Student Organization, but the other members contacted by Mr. Maraniss have little or no memory of him; neither, it seems, did he make much of an impression on his professors.

But in the diary of one girlfriend and the letters he wrote to another, a portrait emerges of someone struggling with his own identity and not sure where he fits in among his old Choom Gang buddies, who were "moving to the mainstream," and among college friends heading toward the business world. His letters are long and self-absorbed but strike the themes that would fill his memoir 10 years later.

In one letter to his girlfriend in 1983, he writes: "Caught without a class, a structure, or tradition to support me, in a sense the choice to take a different path is made for me. . . . The only way to assuage my feelings of isolation are to absorb all the traditions [and all the] classes; make them mine, me theirs." That's heady stuff for a love letter but also a first glimpse of the "post-partisan" Obama who would take the stage at the 2004 Democratic convention.

The recurring theme that runs throughout "Obama: The Story" is just how unlikely is was that someone with Mr. Obama's exotic and tangled family history—whatever his race—would end up in the Oval Office. But perhaps the most striking thing about this story is how much it differs from the story told in "First in His Class" (1995), Mr. Maraniss's acclaimed biography of Bill Clinton. Bill Clinton was the kid who knew he was going to be president when he was 9 years old and acted that way. In Mr. Obama's early years, there are precious few hints of the kind of ambition that would lead him to the White House. For that, we'll have to wait for volume two.
—Mr. Karl is a senior correspondent for ABC News.

O's Debt June 6, 2012

Obama's Debt Boom

The most predictable crisis in history. 

Remember a week or two ago, when President Obama was claiming to be a fiscal skinflint because some online columnist said so? That was fun. On Tuesday the Congressional Budget Office released a view more tethered to reality, and let's just say this will not be showing up in one of the President's campaign ads.

The CBO's long-term budget outlook notes that federal debt held by the public—the kind we have to pay back—will surge to 70% of the economy by the end of this year. That's the highest share of GDP in U.S. history except World War II, as the nearby chart indicates, higher than during the Civil War or World War I. It's also way up from 40% in 2008 and from the 40-year average of 38%.

And it's rising fast. CBO says that on present trend the national debt will hit 90% of GDP by 2022. It then balloons to 109% by 2026—that would be the all-time WWII peak—and approaches almost 200% of GDP by 2037.

 

We have never been deficit scolds, preferring to focus on the more important policy priorities of economic growth and spending restraint. But the Obama era is taking America to a place it has never been. Inside of a decade the country will have a debt-to-GDP ratio well into the 90% to 100% danger zone where economists say the economy begins to slow and risks mount.

CBO notes with its famous dry wit that this level of debt increases "the probability of a sudden fiscal crisis, during which investors would lose confidence in the government's ability to manage its budget and the government would thereby lose its ability to borrow at affordable rates."

How bad is it? In the absolute worst-case scenario, CBO says debt would exceed 250% of GDP in 2035. At that point, the CBO's economic model breaks, because so much debt is so far outside "historical experience" and the CBO's "assumptions might no longer be valid."

This scenario assumes the Bush-Obama tax rates don't expire as scheduled and that tax collections continue to hold to the post-1972 historical average of 18% of GDP. It also assumes that the phantom cuts to entitlement spending that Congress builds into the budget baseline don't happen in practice, as they never do.

Perhaps CBO's most important warning concerns the vagaries of interest rates. Even long-term interest rates are at historic lows, as investors flock to Treasurys as a safe haven in a world of uncertainty. This has dramatically reduced the U.S. government's funding costs, but that will not be true forever.

The budget outlook is based on the projection that the real interest rate on public debt will never exceed 2.7%. But if interest rates rose 0.5 percentage points higher each year than CBO projects, CBO says debt would hit 215% of GDP in 2037, rather than 199%. The compounding growth of interest payments would need to make up—people with heart conditions should stop reading here—some 30% of federal spending and 10% of the entire economy. Every 100 basis point rise in the cost of government borrowing results in nearly $1 trillion in new debt.

The development that explains why debt is so much higher today than during the great national crises of the past is the entitlement state. Post ObamaCare, CBO explains that federal spending on health care will rise from 5.4% of the economy today to 10.4% over the next quarter-century. Ponder that one: That 93% increase means one out of every 10 dollars spent will flow through one transfer program or another—and that's transfers for health care only.

Throw in Social Security and interest on the debt, and by 2025 there's no tax revenue left to do other things government is supposed to do. Forget about building roads and funding scientific research. The entire defense budget would be deficit-financed.
The biggest weakness in CBO's analysis is its pessimistic estimate of economic growth. The budget gnomes assume an annual growth rate of 2.2%, which may be the Obama era's new normal but is far below what is possible with the right policies. Even an average growth rate of 3.2% a year, which is close to the rate of the 1980s and 1990s, would reduce deficits and the debt burden substantially.

This is where the tax burden comes in, and on that score CBO admits that "to the extent that additional tax revenues were generated by boosting marginal tax rates, those higher rates would discourage people from working and saving, further reducing output and income." So even the Keynesians who dominate CBO admit that there are costs in lower growth to the higher tax rates that Mr. Obama wants to foist on the country next year.

As the fiscal adults like Paul Ryan and Tom Coburn often say, this is the most predictable crisis in history. If we wait for the bond vigilantes to strike, as in Europe today, the recourse will be painful spending cuts and destructive tax increases virtually overnight. The longer we extend Mr. Obama's legacy of slow growth and more debt, the greater the economic price to fix it.

A version of this article appeared June 6, 2012, on page A14 in the U.S. edition of The Wall Street Journal, with the headline: Obama's Debt Boom.

George Soros - God Father of the Left

 Executive Summary

The media often talk about left-wing billionaire George Soros – especially his investments and his charity work. But those same news stories seldom give a complete picture of the man behind many of the liberal or “progressive” organizations in the United States and around the world.
Soros has amassed monumental wealth ($20 billion according to Forbes), but he has used much of that money to underwrite political operations, liberal higher education and an international organization that makes him one of the most powerful and influential men in the world. It has also made him among the most hated, not that the U.S. news media report on that. In fact, the American media seldom tell anything about Soros’s problems abroad or his hard-left agenda here at home. Some of the low points all-but ignored by the media include his $3 million fine for insider trading in France and how he operates his “own foreign policy” that often goes against U.S. interests.
The Media Research Center’s Business and Media Institute has undertaken more than a year of investigation into George Soros, his business dealings, his political involvement and his extensive connections to the media. That investigation shows that much of the more than $8.5 billion Soros has given to charity has in turned been used to advocate for hardcore left-wing policies around the globe. Those findings include:

• $400 Million to Manipulate Higher Education: Journalists who thought the Koch brothers were dominating college funding with a mere $7 million should check out Soros. He’s given more than 50 times more and even helped establish his own university, Central European University, which teaches his own bizarre political/social philosophy of “open society.”
• Global Scandals Largely Unreported: Soros has admitted to helping start revolutions, funding radicals and attacking national currencies. His insider trading conviction in France cost him $3 million and has been upheld by European courts repeatedly. His foundations have been opposed by nations around the globe, yet almost the only negative press he has received on ABC, CBS and NBC was linked to a sex scandal with a 28-year-old Brazilian actress.
• Political Contributions to Most Major Liberal Politicians: Soros has personally funded some of the top names in America’s left from Barack Obama to Nancy Pelosi. Soros donates hundreds of millions to politically active liberal organizations as well. He’s even given $500,000 to the allegedly neutral Center for Responsive Politics, which is the source for much of the information on political donations.
• More Than Half a Billion Dollars to Finance the Left: George Soros aids hundreds of left-wing groups in America each year under the auspices of his Open Society Foundations. Since 2000, Soros has given more than $550 million to liberal organizations in the U.S., underwriting every major liberal initiative – pro-abortion, pro-euthanasia, pro-gay marriage, pro-drug legalization, pro-union, pro-government-funded media and even attacks against the concept of free elections and voting for judges.

Recommendations:
The Business and Media Institute has several recommendations for news outlets on how they can improve their coverage of George Soros and his foundations.

• Do Some Genuine Journalism and Investigate Soros: George Soros is the embodiment of media bias. While the American media obsess about almost any action of the libertarian Koch brothers, they all-but ignore his one-man quest for global power. Soros has given more than $8.5 billion to his Open Society Foundations, leaving an imprint on more than 70 nations. Any business, organization or individual with that kind of financing and international reach is ripe for investigation. It’s time journalists did some digging on their own.
• Treat Public Figures Equally: If someone on the left squawks about Charles and David Koch, journalists from some major news organizations jump to write about it. But criticisms of Soros, his business practices and even his conviction seldom get noted by the media. Journalists should treat all public figures equally.
• Don’t Ignore Soros Connections to Major News Events: Newspaper front pages are filled with protests, complaints and supposedly grassroots initiatives that are easily tied to Soros – through the Center of American Progress and other entities he funds. But that connection is almost never made made. Journalists ignore obvious funding connections and sometimes don’t even check connections openly made on organizational websites. It’s the job of news to show when organizations are blatantly working together toward an end and to show the obvious ties these groups might share.

George Soros Comments on EU - June 2012

George Soros Remarks

Festival of Economics

June 2, 2012

Trento, Italy

Ever since the Crash of 2008 there has been a widespread recognition, both among economists and the general public, that economic theory has failed. But there is no consensus on the causes and the extent of that failure.

I believe that the failure is more profound than generally recognized. It goes back to the foundations of economic theory. Economics tried to model itself on Newtonian physics. It sought to establish universally and timelessly valid laws governing reality. But economics is a social science and there is a fundamental difference between the natural and social sciences. Social phenomena have thinking participants who base their decisions on imperfect knowledge. That is what economic theory has tried to ignore.

Scientific method needs an independent criterion, by which the truth or validity of its theories can be judged. Natural phenomena constitute such a criterion; social phenomena do not. That is because natural phenomena consist of facts that unfold independently of any statements that relate to them. The facts then serve as objective evidence by which the validity of scientific theories can be judged. That has enabled natural science to produce amazing results.

Social events, by contrast, have thinking participants who have a will of their own.  They are not detached observers but engaged decision makers whose decisions greatly influence the course of events. Therefore the events do not constitute an independent criterion by which participants can decide whether their views are valid. In the absence of an independent criterion people have to base their decisions not on knowledge but on an inherently biased and to greater or lesser extent distorted interpretation of reality. Their lack of perfect knowledge or fallibility introduces an element of indeterminacy into the course of events that is absent when the events relate to the behavior of inanimate objects. The resulting uncertainty hinders the social sciences in producing laws similar to Newton’s physics.

Economics, which became the most influential of the social sciences, sought to remove this handicap by taking an axiomatic approach similar to Euclid’s geometry. But Euclid’s axioms closely resembled reality while the theory of rational expectations and the efficient market hypothesis became far removed from it. Up to a point the axiomatic approach worked. For instance, the theory of perfect competition postulated perfect knowledge. But the postulate worked only as long as it was applied to the exchange of physical goods. When it came to production, as distinct from exchange, or to the use of money and credit, the postulate became untenable because the participants’ decisions involved the future and the future cannot be known until it has actually occurred.

I am not well qualified to criticize the theory of rational expectations and the efficient market hypothesis because as a market participant I considered them so unrealistic that I never bothered to study them. That is an indictment in itself but I shall leave a detailed critique of these theories to others.

Instead, I should like to put before you a radically different approach to financial markets. It was inspired by Karl Popper who taught me that people’s interpretation of reality never quite corresponds to reality itself. This led me to study the relationship between the two. I found a two-way connection between the participants’ thinking and the situations in which they participate. On the one hand people seek to understand the situation; that is the cognitive function. On the other, they seek to make an impact on the situation; I call that the causative or manipulative function. The two functions connect the thinking agents and the situations in which they participate in opposite directions. In the cognitive function the situation is supposed to determine the participants’ views; in the causative function the participants’ views are supposed to determine the outcome. When both functions are at work at the same time they interfere with each other. The two functions form a circular relationship or feedback loop. I call that feedback loop reflexivity. In a reflexive situation the participants’ views cannot correspond to reality because reality is not something independently given; it is contingent on the participants’ views and decisions. The decisions, in turn, cannot be based on knowledge alone; they must contain some bias or guess work about the future because the future is contingent on the participants’ decisions.

Fallibility and reflexivity are tied together like Siamese twins. Without fallibility there would be no reflexivity – although the opposite is not the case: people’s understanding would be imperfect even in the absence of reflexivity. Of the two twins, fallibility is the first born. Together, they ensure both a divergence between the participants’ view of reality and the actual state of affairs and a divergence between the participants’ expectations and the actual outcome.

Obviously, I did not discover reflexivity. Others had recognized it before me, often under a different name. Robert Merton wrote about self-fulfilling prophecies and the bandwagon effect, Keynes compared financial markets to a beauty contest where the participants had to guess who would be the most popular choice. But starting from fallibility and reflexivity I focused on a problem area, namely the role of misconceptions and misunderstandings in shaping the course of events that mainstream economics tried to ignore. This has made my interpretation of reality more realistic than the prevailing paradigm.

Among other things, I developed a model of a boom-bust process or bubble which is endogenous to financial markets, not the result of external shocks. According to my theory, financial bubbles are not a purely psychological phenomenon.  They have two components: a trend that prevails in reality and a misinterpretation of that trend. A bubble can develop when the feedback is initially positive in the sense that both the trend and its biased interpretation are mutually reinforced. Eventually the gap between the trend and its biased interpretation grows so wide that it becomes unsustainable. After a twilight period both the bias and the trend are reversed and reinforce each other in the opposite direction. Bubbles are usually asymmetric in shape: booms develop slowly but the bust tends to be sudden and devastating. That is due to the use of leverage: price declines precipitate the forced liquidation of leveraged positions.

Well-formed financial bubbles always follow this pattern but the magnitude and duration of each phase is unpredictable. Moreover the process can be aborted at any stage so that well-formed financial bubbles occur rather infrequently.

At any moment of time there are myriads of feedback loops at work, some of which are positive, others negative. They interact with each other, producing the irregular price patterns that prevail most of the time; but on the rare occasions that bubbles develop to their full potential they tend to overshadow all other influences.

According to my theory financial markets may just as soon produce bubbles as tend toward equilibrium. Since bubbles disrupt financial markets, history has been punctuated by financial crises. Each crisis provoked a regulatory response. That is how central banking and financial regulations have evolved, in step with the markets themselves. Bubbles occur only intermittently but the interplay between markets and regulators is ongoing. Since both market participants and regulators act on the basis of imperfect knowledge the interplay between them is reflexive. Moreover reflexivity and fallibility are not confined to the financial markets; they also characterize other spheres of social life, particularly politics. Indeed, in light of the ongoing interaction between markets and regulators it is quite misleading to study financial markets in isolation. Behind the invisible hand of the market lies the visible hand of politics. Instead of pursuing timeless laws and models we ought to study events in their time bound context.

My interpretation of financial markets differs from the prevailing paradigm in many ways. I emphasize the role of misunderstandings and misconceptions in shaping the course of history. And I treat bubbles as largely unpredictable. The direction and its eventual reversal are predictable; the magnitude and duration of the various phases is not. I contend that taking fallibility as the starting point makes my conceptual framework more realistic. But at a price: the idea that laws or models of universal validity can predict the future must be abandoned.

Until recently, my interpretation of financial markets was either ignored or dismissed by academic economists. All this has changed since the crash of 2008. Reflexivity became recognized but, with the exception of Imperfect Knowledge Economics, the foundations of economic theory have not been subjected to the profound rethinking that I consider necessary. Reflexivity has been accommodated by speaking of multiple equilibria instead of a single one. But that is not enough. The fallibility of market participants, regulators, and economists must also be recognized.  A truly dynamic situation cannot be understood by studying multiple equilibria.  We need to study the process of change.

The euro crisis is particularly instructive in this regard. It demonstrates the role of misconceptions and a lack of understanding in shaping the course of history. The authorities didn’t understand the nature of the euro crisis; they thought it is a fiscal problem while it is more of a banking problem and a problem of competitiveness. And they applied the wrong remedy: you cannot reduce the debt burden by shrinking the economy, only by growing your way out of it. The crisis is still growing because of a failure to understand the dynamics of social change; policy measures that could have worked at one point in time were no longer sufficient by the time they were applied.

Since the euro crisis is currently exerting an overwhelming influence on the global economy I shall devote the rest of my talk to it. I must start with a warning: the discussion will take us beyond the confines of economic theory into politics and the dynamics of social change. But my conceptual framework based on the twin pillars of fallibility and reflexivity still applies. Reflexivity doesn’t always manifest itself in the form of bubbles. The reflexive interplay between imperfect markets and imperfect authorities goes on all the time while bubbles occur only infrequently. This is a rare occasion when the interaction exerts such a large influence that it casts its shadow on the global economy. How could this happen? My answer is that there is a bubble involved, after all, but it is not a financial but a political one. It relates to the political evolution of the European Union and it has led me to the conclusion that the euro crisis threatens to destroy the European Union. Let me explain.

I contend that the European Union itself is like a bubble. In the boom phase the EU was what the psychoanalyst David Tuckett calls a “fantastic object” – unreal but immensely attractive. The EU was the embodiment of an open society –an association of nations founded on the principles of democracy, human rights, and rule of law in which no nation or nationality would have a dominant position.

The process of integration was spearheaded by a small group of far sighted statesmen who practiced what Karl Popper called piecemeal social engineering. They recognized that perfection is unattainable; so they set limited objectives and firm timelines and then mobilized the political will for a small step forward, knowing full well that when they achieved it, its inadequacy would become apparent and require a further step. The process fed on its own success, very much like a financial bubble. That is how the Coal and Steel Community was gradually transformed into the European Union, step by step.

Germany used to be in the forefront of the effort. When the Soviet empire started to disintegrate, Germany’s leaders realized that reunification was possible only in the context of a more united Europe and they were willing to make considerable sacrifices to achieve it.  When it came to bargaining they were willing to contribute a little more and take a little less than the others, thereby facilitating agreement.  At that time, German statesmen used to assert that Germany has no independent foreign policy, only a European one.

The process culminated with the Maastricht Treaty and the introduction of the euro. It was followed by a period of stagnation which, after the crash of 2008, turned into a process of disintegration. The first step was taken by Germany when, after the bankruptcy of Lehman Brothers, Angela Merkel declared that the virtual guarantee extended to other financial institutions should come from each country acting separately, not by Europe acting jointly. It took financial markets more than a year to realize the implication of that declaration, showing that they are not perfect.

The Maastricht Treaty was fundamentally flawed, demonstrating the fallibility of the authorities. Its main weakness was well known to its architects: it established a monetary union without a political union. The architects believed however, that when the need arose the political will could be generated to take the necessary steps towards a political union.

But the euro also had some other defects of which the architects were unaware and which are not fully understood even today. In retrospect it is now clear that the main source of trouble is that the member states of the euro have surrendered to the European Central Bank their rights to create fiat money. They did not realize what that entails – and neither did the European authorities. When the euro was introduced the regulators allowed banks to buy unlimited amounts of government bonds without setting aside any equity capital; and the central bank accepted all government bonds at its discount window on equal terms. Commercial banks found it advantageous to accumulate the bonds of the weaker euro members in order to earn a few extra basis points. That is what caused interest rates to converge which in turn caused competitiveness to diverge. Germany, struggling with the burdens of reunification, undertook structural reforms and became more competitive. Other countries enjoyed housing and consumption booms on the back of cheap credit, making them less competitive. Then came the crash of 2008 which created conditions that were far removed from those prescribed by the Maastricht Treaty. Many governments had to shift bank liabilities on to their own balance sheets and engage in massive deficit spending. These countries found themselves in the position of a third world country that had become heavily indebted in a currency that it did not control. Due to the divergence in economic performance Europe became divided between creditor and debtor countries. This is having far reaching political implications to which I will revert.

It took some time for the financial markets to discover that government bonds which had been considered riskless are subject to speculative attack and may actually default; but when they did, risk premiums rose dramatically. This rendered commercial banks whose balance sheets were loaded with those bonds potentially insolvent. And that constituted the two main components of the problem confronting us today: a sovereign debt crisis and a banking crisis which are closely interlinked.

The eurozone is now repeating what had often happened in the global financial system. There is a close parallel between the euro crisis and the international banking crisis that erupted in 1982. Then the international financial authorities did whatever was necessary to protect the banking system: they inflicted hardship on the periphery in order to protect the center. Now Germany and the other creditor countries are unknowingly playing the same role. The details differ but the idea is the same: the creditors are in effect shifting the burden of adjustment on to the debtor countries and avoiding their own responsibility for the imbalances. Interestingly, the terms “center” and “periphery” have crept into usage almost unnoticed. Just as in the 1980’s all the blame and burden is falling on the “periphery” and the responsibility of the “center” has never been properly acknowledged.  Yet in the euro crisis the responsibility of the center is even greater than it was in 1982. The “center” is responsible for designing a flawed system, enacting flawed treaties, pursuing flawed policies and always doing too little too late. In the 1980’s Latin America suffered a lost decade; a similar fate now awaits Europe. That is the responsibility that Germany and the other creditor countries need to acknowledge. But there is now sign of this happening.

The European authorities had little understanding of what was happening. They were prepared to deal with fiscal problems but only Greece qualified as a fiscal crisis; the rest of Europe suffered from a banking crisis and a divergence in competitiveness which gave rise to a balance of payments crisis. The authorities did not even understand the nature of the problem, let alone see a solution. So they tried to buy time.

Usually that works. Financial panics subside and the authorities realize a profit on their intervention. But not this time because the financial problems were reinforced by a process of political disintegration. While the European Union was being created, the leadership was in the forefront of further integration; but after the outbreak of the financial crisis the authorities became wedded to preserving the status quo. This has forced all those who consider the status quo unsustainable or intolerable into an anti-European posture. That is the political dynamic that makes the disintegration of the European Union just as self-reinforcing as its creation has been.  That is the political bubble I was talking about.

At the onset of the crisis a breakup of the euro was inconceivable: the assets and liabilities denominated in a common currency were so intermingled that a breakup would have led to an uncontrollable meltdown. But as the crisis progressed the financial system has been progressively reordered along national lines. This trend has gathered momentum in recent months. The Long Term Refinancing Operation (LTRO) undertaken by the European Central Bank enabled Spanish and Italian banks to engage in a very profitable and low risk arbitrage by buying the bonds of their own countries. And other investors have been actively divesting themselves of the sovereign debt of the periphery countries.

If this continued for a few more years a break-up of the euro would become possible without a meltdown – the omelet could be unscrambled – but it would leave the central banks of the creditor countries with large claims against the central banks of the debtor countries which would be difficult to collect. This is due to an arcane problem in the euro clearing system called Target2. In contrast to the clearing system of the Federal Reserve, which is settled annually, Target2 accumulates the imbalances. This did not create a problem as long as the interbank system was functioning because the banks settled the imbalances themselves through the interbank market. But the interbank market has not functioned properly since 2007 and the banks relied increasingly on the Target system. And since the summer of 2011 there has been increasing capital flight from the weaker countries. So the imbalances grew exponentially. By the end of March this year the Bundesbank had claims of some 660 billion euros against the central banks of the periphery countries.

The Bundesbank has become aware of the potential danger. It is now engaged in a campaign against the indefinite expansion of the money supply and it has started taking measures to limit the losses it would sustain in case of a breakup. This is creating a self-fulfilling prophecy. Once the Bundesbank starts guarding against a breakup everybody will have to do the same.

This is already happening. Financial institutions are increasingly reordering their European exposure along national lines just in case the region splits apart. Banks give preference to shedding assets outside their national borders and risk managers try to match assets and liabilities within national borders rather than within the eurozone as a whole. The indirect effect of this asset-liability matching is to reinforce the deleveraging process and to reduce the availability of credit, particularly to the small and medium enterprises which are the main source of employment.

So the crisis is getting ever deeper. Tensions in financial markets have risen to new highs as shown by the historic low yield on Bunds. Even more telling is the fact that the yield on British 10 year bonds has never been lower in its 300 year history while the risk premium on Spanish bonds is at a new high.

The real economy of the eurozone is declining while Germany is still booming. This means that the divergence is getting wider. The political and social dynamics are also working toward disintegration. Public opinion as expressed in recent election results is increasingly opposed to austerity and this trend is likely to grow until the policy is reversed. So something has to give.

In my judgment the authorities have a three months’ window during which they could still correct their mistakes and reverse the current trends. By the authorities I mean mainly the German government and the Bundesbank because in a crisis the creditors are in the driver’s seat and nothing can be done without German support.

I expect that the Greek public will be sufficiently frightened by the prospect of expulsion from the European Union that it will give a narrow majority of seats to a coalition that is ready to abide by the current agreement. But no government can meet the conditions so that the Greek crisis is liable to come to a climax in the fall. By that time the German economy will also be weakening so that Chancellor Merkel will find it even more difficult than today to persuade the German public to accept any additional European responsibilities. That is what creates a three months’ window.

Correcting the mistakes and reversing the trend would require some extraordinary policy measures to bring conditions back closer to normal, and bring relief to the financial markets and the banking system. These measures must, however, conform to the existing treaties. The treaties could then be revised in a calmer atmosphere so that the current imbalances will not recur. It is difficult but not impossible to design some extraordinary measures that would meet these tough requirements. They would have to tackle simultaneously the banking problem and the problem of excessive government debt, because these problems are interlinked. Addressing one without the other, as in the past, will not work.

Banks need a European deposit insurance scheme in order to stem the capital flight. They also need direct financing by the European Stability Mechanism (ESM) which has to go hand-in-hand with eurozone-wide supervision and regulation. The heavily indebted countries need relief on their financing costs. There are various ways to provide it but they all need the active support of the Bundesbank and the German government.

That is where the blockage is. The authorities are working feverishly to come up with a set of proposals in time for the European summit at the end of this month. Based on the current newspaper reports the measures they will propose will cover all the bases I mentioned but they will offer only the minimum on which the various parties can agree while what is needed is a convincing commitment to reverse the trend. That means the measures will again offer some temporary relief but the trends will continue. But we are at an inflection point.  After the expiration of the three months’ window the markets will continue to demand more but the authorities will not be able to meet their demands.

It is impossible to predict the eventual outcome. As mentioned before, the gradual reordering of the financial system along national lines could make an orderly breakup of the euro possible in a few years’ time and, if it were not for the social and political dynamics, one could imagine a common market without a common currency. But the trends are clearly non-linear and an earlier breakup is bound to be disorderly. It would almost certainly lead to a collapse of the Schengen Treaty, the common market, and the European Union itself. (It should be remembered that there is an exit mechanism for the European Union but not for the euro.) Unenforceable claims and unsettled grievances would leave Europe worse off than it was at the outset when the project of a united Europe was conceived.

But the likelihood is that the euro will survive because a breakup would be devastating not only for the periphery but also for Germany. It would leave Germany with large unenforceable claims against the periphery countries. The Bundesbank alone will have over a trillion euros of claims arising out of Target2 by the end of this year, in addition to all the intergovernmental obligations. And a return to the Deutschemark would likely price Germany out of its export markets – not to mention the political consequences. So Germany is likely to do what is necessary to preserve the euro – but nothing more. That would result in a eurozone dominated by Germany in which the divergence between the creditor and debtor countries would continue to widen and the periphery would turn into permanently depressed areas in need of constant transfer of payments. That would turn the European Union into something very different from what it was when it was a “fantastic object” that fired peoples imagination. It would be a German empire with the periphery as the hinterland.

I believe most of us would find that objectionable but I have a great deal of sympathy with Germany in its present predicament. The German public cannot understand why a policy of structural reforms and fiscal austerity that worked for Germany a decade ago will not work Europe today. Germany then could enjoy an export led recovery but the eurozone today is caught in a deflationary debt trap. The German public does not see any deflation at home; on the contrary, wages are rising and there are vacancies for skilled jobs which are eagerly snapped up by immigrants from other European countries. Reluctance to invest abroad and the influx of flight capital are fueling a real estate boom. Exports may be slowing but employment is still rising. In these circumstances it would require an extraordinary effort by the German government to convince the German public to embrace the extraordinary measures that would be necessary to reverse the current trend. And they have only a three months’ window in which to do it.

We need to do whatever we can to convince Germany to show leadership and preserve the European Union as the fantastic object that it used to be. The future of Europe depends on it.

Read more: http://www.businessinsider.com/full-text-of-george-soros-speech-2012-6#ixzz1wvAGTWy0

Seth Leibson 06-01-2012

June 1, 2012

As Broadcast on Bill Bennett’s Morning in America

By Seth Leibsohn



A quick tale of two pieces of legislation and a quick note on civics—One piece of legislation passed the Senate by a vote of 85 to 14 and the House by a vote of 342 to 67.  Another piece of legislation passed the Senate by a vote of 60 to 39 and the House by a vote of 219 to 212.  The first was passed by what you might call supermajorities; the second by the narrowest of margins.  The first was the Defense of Marriage Act, signed into law by President Bill Clinton; the second was the Affordable Care Act, aka “Obamacare,” and signed into law by President Barack Obama.



Now, when the Supreme Court took up Obamacare, President Obama said the following, just two months ago:



I'm confident that the Supreme Court will not take what would be an unprecedented extraordinary step of overturning a law that was passed by a strong majority of a democratically elected congress.



….[than an] unelected group of people would somehow overturn a duly constituted and passed law.



Well, this is a good example and I’m pretty confident this court will recognize that and not take that step.



“An unelected group,”  “a duly constituted law,” “a strong majority.”  Is a piece of legislation that passed with no bi-partisanship a duly constituted law with a strong majority?  Maybe.  But what about a law with bipartisan support that passed by 25 more votes in the Senate and by 123 more votes in the House?  Will President Obama take this odd position on judicial review with respect to the Defense of Marriage Act as he did with Obamacare?  I ask this as the First Circuit Federal Court of Appeals just held the Defense of Marriage Act unconstitutional.  And yes, it will head to the Supreme Court.



Of course we know President Obama’s views on this because he and his Attorney General, Eric Holder, made the decision they would not enforce or defend in court the “duly constituted” law passed with a “strong majority” because they happened to merely disagree with it.



If you can now begin to wonder why that extra-Constitutional power-grab, to not defend a law your oath requires you to defend, was contemptuous of the Constitution, perhaps you can now also see the raw political calculation made to challenge the Supreme Court on Obamacare by lecturing the American people on the exact opposite of the whole point of what we know as Judicial Review—a practice that goes back to John Marshall and Marbury v. Madison.



If the President doesn’t understand that the role of the courts is, in fact, to analyze laws (and let’s remind him, laws only get passed by majorities) and sometimes hold them unconstitutional, that is, strike them down, then he understands very little about not only the history of America but the role of the Constitution, the three branches of government, and, in fact, democracy itself.  I never attended the University of Chicago but if this is what was taught at its law school, in his classroom, those students ought to get their tuition back.  To say what he did about the Court and Obamacare, and to do what he did on the Defense of Marriage Act is not any kind of brave defense of the Constitution or constitutional rights, it is, rather, a playing of politics with our Constitution and that, I always thought, as I learned it from the writings of the left about the Nixon administration, was what is called “An Imperial Presidency.”



And, of course, imperialism is a danger to democracy, a threat to it, because it is oppositional to it.  One can make this point regardless of one’s political and policy views about the Defense of Marriage Act or Obamacare, it is a point about constitutionalism.  It is a fundamental misunderstanding about one of the very pillars of our democracy.  Of course, unless, President Obama actually knows all this and is just lying deliberately, which would be worse.


But I think he may actually not know all this because time and again he betrays his ignorance about history just as he betrays his ignorance about things he was to be oh-so-smart about, like other nations’ views.



Rewind to his first foray into bad history.  When he was running for President, Barack Obama—in justifying his position that he would meet with Iran without precondition and in his first year of office—said the following: “That is what Kennedy did with Khrushchev; that’s what Nixon did with Mao; what Reagan did with Gorbachev.”



As I’ve pointed out before, in reverse order, Ronald Reagan met with no Soviet leader during the entirety of his first term in office, not (ever) with Brezhnev, not (ever) with Andropov, not (ever) with Chernenko. He met only with Gorbachev, and only after he was assured Gorbachev was a different kind of Soviet leader — and after Perestroika, not before.



If Barack Obama wants to affiliate with Richard Nixon, that’s certainly his call. But one question: Was Taiwan’s expulsion from the U.N. worth “Nixon to China”? That was the price of that meeting.



As for the Kennedy-Khrushchev summit of 1961, Kennedy himself said “He (Khrushchev) beat the hell out of me.” Paul Nitze said the meeting was “just a disaster.” And, Khrushchev’s aide, after the first day, said the American president seemed “very inexperienced, even immature.” Khrushchev agreed, noting that the youthful Kennedy was “too intelligent and too weak.”  So successful was the summit that the Berlin Wall was erected later that year and the Cuban Missile Crisis, with Soviets deploying nuclear missiles in Cuba, commenced the following year.



That was Obama’s understanding of world history.  It was upside down, wrong, what a teacher would give an “F” grade to a student for writing about the summit.  And yet that is the history President Obama used and has used in negotiating with Iran.  Let me pause here to say we should not be negotiating with Iran, we should be confronting Iran.  Let me add parenthetically that of course bad history doesn’t end here, this week we also received a mis-lesson—I should say our ally Poland received a mis-lesson—on this history of the Holocaust and World War II courtesy of President Obama.  He clearly is a man who knows very little at a time when we need a president who knows a lot.



But back to Iran for just a moment.  Even during a month when Iran’s President Machmoud Achmadinejad reiterated a desire for the “destruction of the Zionist entity,” i.e., Israel, the US continued to negotiate with Iran.  Now please remember, in advance of the Baghdad negotiations that just concluded in abject failure, I had quoted Secretary of State Clinton and others in the administration who were optimistic about these meetings.  Indeed, one headline read “Clinton Optimistic on Iran nulear talks.”



Well, how did those talks go?  The Financial Times headline:  “Iran talks end in harsh lesson for west.”  A Reuters headline:  “Iran has enough uranium for 5 bombs.”  By the way, the first line of that story:  “Iran has significantly stepped up its output of low-enriched uranium and total production.”  A Washington Post headline:  “Iran nuclear talks: World powers to continue discussion, but no progress on a deal.”  And Bret Stephen’s report in the Wall Street Journal on what transpired:  “Iran did more than just reject demands to shut down its underground enrichment facility at Fordo and ship its near-bomb-grade uranium abroad. It also announced it would do precisely the opposite: install more centrifuges at Fordo, increase the rate of enrichment, and forbid any U.N. inspections of suspected military sites.”



This, after optimism ahead of the talks that we all warned and continued to warn about.  And now, Thursday, we get the report based on satellite imagery that Iran is actually hiding the development of nuclear weapons at its Parchin site, a place it refuses IAEA inspectors to enter.



When you do not know your own history, when you do not know your own democracy, when you do not know your own Constitution, it becomes increasingly easy to not know other nations’ histories, other nations’ ideologies, and other nations’ governing constitutions—even when they have nothing but evil designs on and for you.  You think sanctions will work?  Read the words of modern Iran’s founder, Ayatollah Khomeni.  He said “We know how to fast.”  Indeed, Iran does.  The irony here—it is Iran’s appetite we are feeding.



Just as it was Syria’s appetite this administration fed.  President Bush pulled our ambassador out of Syria years ago.  Obama knew better, and in an attempt to reset our foreign policy toward Syria there, he restored our ambassador; only now, after Syria’s charnel house geared back up, to pull our diplomatic corps out of there again.



You don’t know history—ours or others’; you don’t know democracy—ours or others’; you don’t know ideology—especially our enemies’, and this is the government you get:  closing down our own understanding of constitutionalism domestically, endangering the world abroad, and endangering ourselves at home.  This is, to quote the French philosopher Jean-Francois Revel, how democracies perish.  They perish by not understanding what makes and keeps us strong, and they perish by, to quote the American political scientist Jeane Kirkpatrick, “[D]epending for its very survival on the promises of its adversaries.”  And of course they perish by playing politics with the Constitution.


We can keep going this way for a while I suppose, but if we do, we will have to ask ourselves soon enough—if we are alive to ask ourselves—what is it, just what is it, we are governing here?  A democracy that thrives and enriches and empowers its own people while it teaches something to the world? Or, indeed, something else that is dependent on the vagaries, tyrannies, and appetites of the world—and vagaries, tyrannies, and appetites that we, indeed, helped to feed?



You see, ignorance can destroy you from within as well as from without.



If we don’t see that choice and those possibilities now, it will—not far down the line—be too late to see them, ever.  I submit, we’ve come too far, fought too hard, and bled too much for that.