Independent Caucus

Breaking the Cycle between Israel and the Palestinians

A friend sent an email recently with these very good questions:

1. Do these Hamas guys start shooting rockets into Israel, knowing they will get their collective asses kicked good?
2. Can't our satellites and/or unmanned spy planes identify from whence the rockets are being fired and blast the rockets and launching equipment?
3. Can't these same intelligence activities find the storage areas for the ordinance?
4. Can't the Israeli and our intelligence assets find who is selling and transporting these rockets and put some "hurt" on them?
5. Can't these same intelligence folks find the Hamas head guys that OK and initiate these attacks and put a permanent solution on them possibly in Iran and Syria?

I answered him this way:

All good questions.

Answer to the first question is definitely - yes. If the Middle East gets too quiet for too long, Hamas and the Palestinians fear their Arab compatriots in the surrounding countries forgetting about them, or, worse, thinking Israel is being a reasonably good, peaceful neighbor with whom, as a consequence, they should think about settling a peace agreement.  The Palestinians are a people angry and aggrieved enough that they can't live peacefully anywhere.  Jordon doesn't want them.  Israel doesn't know what to do about them.  I don't feel too, too bad for Israel, because I feel that they don't take enough initiative over things they can entirely control, and which would help the cause of peace, like stopping the expansion of Jewish settlements in the occupied territories in violation of various U.N. resolutions, and dismantling those already there.  Their strategy in the occupied territories for a while now has been one of "squatters' rights" - they think if they stay there long enough, they can eventually annex those territories.  Well, if that's their goal, they should just say it, or do it, but don't keep participating in basically phony offerings of pulling out of those areas, of giving back the Golan Heights to Syria, and so on.  Just say, "We won these areas.  They are ours.  We annex them."  And then do what they can to get the U.N. to recognize their claim.  And the bottom line is that the British created Jordon as the Arab state in Palestine.  Israel is logically the Jewish state in Palestine, and really, practically, it's too small to split among another Arab Palestine and Israel.  It's too small.  The Brits messed up, because they declared Jordon as Arab, and left current-day Israel and the occupied territories undeclared.  The Jews had been asking the Brits for a state in that area since WWI, and the Brits had told them they could have one (Balfour Declaration)!  So the area west of Jordon was logically the Jewish homeland.  But the Arabs who lived there didn't want to be part of a Jewish state, even though its constitution would guarantee the rights of all races and religious denominations.  They didn't want to live within a Jewish state, and they didn't want to move east to Jordon.  Basically, they just wanted then, and want now, for the Jews to go away so that Palestinian Arabs can have the entire area.  And it's not going to happen.  So they are going to periodically blow up stuff, knowing they will be blown up too, but that at least in the process the Arab world and the U.N. will get good and pissed at Israel all over again.

Questions 2-5 are related.  I think all those things are happening in one way or another, not entirely successfully, but happening.  The Israelis are blowing up houses and buildings from which rockets are being launched.  And then the Palestinians just use different buildings.  They are blowing up some of the supply tunnels from Egypt to Gaza.  The Palestinians dig new ones.  They have all eternity for this, because that's how long they will be aggrieved at the fact that Jews live in Palestine in large numbers.  And that's not about to change.

The only way the cycle would be broken, given that the Palestinians shall not ever negotiate a peace treaty with Israel, are:

• The Israelis invade Gaza again, and not just occupy, but forcibly, massively move its inhabitants out of their homes, into trucks, and resettle them in camps on the West Bank.  Then level Gaza.  Annex it.  And rebuild it as quickly as possible with Jewish settlements.  This risks Egypt nullifying its peace treaty with Israel and no doubt multiple U.N. Security Council resolutions to stop.  Iran and possibly Egypt might declare war, with Syria and maybe even Saudi Arabia to follow, and then who knows?  That's why this won't happen.
• The U.N., with the support of the major military powers in the world - the U.S., NATO, Russia, and China - decide enough is enough, work out a strategy for bringing peace to the area, and impose if forcibly on both Israel and the Palestinians.  If Israel doesn't cooperate, then massive, massive sanctions result, including military equipment, and, especially, replacement parts.  If the Palestinians don't cooperate, then Gaza is occupied perhaps perpetually by U.N. troops, and the penalty for inciting or participating in violence is death (if the violence was deadly) or expulsion - where to, would be the next question, since unfortunately Australia can no longer be used for that purpose the way the British did once upon a time.  Perhaps they would serve jail terms (based on the offense) in jails constructed throughout a range of different countries; in that way, all countries imposing the solution share the burden of implementing it.

Otherwise, if the Israelis periodically "react" to rocket attacks from Gaza, then this just perpetuates what we've seen and are seeing again.  If they invade and occupy, then they get picked off one by one in that very urban setting, Intifada-style, until they retreat again, only to get hit again by rockets from Gaza, and the whole thing repeats.  I've wanted the rest of the world, and the U.N. particularly, since directly or indirectly they helped create this mess, to impose a solution on all parties for some time now.  I think they should warn the Palestinians and Israelis that an imposed solution is coming, that they have a year to work out a peace plan and sign it, otherwise, a solution will be imposed on all.  Then hold very much to that threat.  Such a step cannot be imposed by any one nation, especially the United States, given that we've been there and done that in Iraq, and the go-it-alone not only has bankrupted us, but puts too big a bull's eye on us.  And plus it's just not right.  It's not up to one country to say.  But the bullshit in the Middle East has gone unresolved for far too long, now.  It's time the U.N., the world's major powers, solve it...or threaten to...and I believe with some hope thrown in that the threat of an imposed solution would bring about a negotiated one between the parties.

Wrapping Things Up

I thought when I started this blog that if I or some guest blogger or reader wrote something especially well-reasoned and supported that it would be well received by nearly all readers, regardless their party affiliation or preference.  Wrong.  Naive.  Very naive.  I'm learning.  But the way a naive person learns.  Slowly.

This blog has gotten plenty of people mad at me, or if not mad then irritated, and if not irritated then agitated.  Readers have told me that they have read a post to a point and couldn't read any further, or that the blog should be renamed.  Not lately.  But, then, I haven't written much lately.  And most recent posts have dealt largely with a topic everyone knows is important but can't really grasp, somehow, and that's the financial crisis.  It's a topic which requires too much.  Too much detailed knowledge of things which don't really interest them that much, i.e. financial instruments and how financial products are bought, sold, and traded.  I think in truth it takes more self-study than most topics this blog or any political blog would typically address.  But it's doable.  And it's important.  After all, a collapse in the financial markets could and has brought us a depression.  That's 25% unemployment, and a lot of suffering, a lot of misery allowed to occur because finance - loans, lending, insurance, stocks, bonds, futures, and derivatives - is abstruse to most of us.  That's too high a price, I think.  So, this is my effort to wrap things up.  At least - since most don't want to hear it - it's likely to not irritate anyone too much.

As with most problems, you can get to the cause if you keep backing up.  We know the financial crisis is foremost a liquidity crisis.  Banks can't lend.  Why?  Because their capital (i.e. their assets, their worth) decreased dramatically, and statutorily they must lend in relation to their capital.  But why did their capital decrease?  Because their portfolios of mortgage-backed securities (MBS) decreased substantially, and it was a substantial portion of their assets.  But why did their MBS portfolios decrease so much?  Because backing the securities were loans, actual, physical home loans, which were being defaulted upon at record rates.  But why?  Because the housing bubble of the last several years burst, and home prices began falling, and rapidly, and this meant that folks whose mortgages had required a very small if any down payment now had negative equity, and folks whose mortgages were about to reset to a much higher rate (sub-prime loans) couldn't refinance to a straight mortgage due to lack of sufficient equity.  And they also couldn't afford the higher rate.  So many folks began to look at their mortgage as a very unwise thing to continue to pay for.  And they were right.  It was better for them to foreclose, and walk away.  But as soon as they did, their house was worth immediately less, hence the MBS backed by those loans were worth immediately less.

So, then, why did the housing bubble burst?  Because all bubbles burst.  So, then, why was there a bubble in the first place.  THIS, finally, after peeling this onion for a paragraph, begins to get at the cause of the financial crisis.  Because no bubble?..no crisis.  No bubble means no bursting.  No bursting means housing prices don't tumble, and MBS are worth plenty, specifically, about what their investors thought they'd be worth, and sub-prime loans don't default.  Why?  Because sub-prime borrowers are able to leverage the equity in their home - now nicely appreciated in value over the last 24 months or so - and refinance to a lower, fixed-rate mortgage.  So, no bubble, no crisis.  But there was a bubble.  Why?  And how do we avoid one in the future?  Are bubbles ever good?  No, hence the name "bubble", as something which always bursts, as I ask if you have ever encountered one that did not?

A bubble means an unnatural, unstable, unsustainable rise in prices.  Sounds like inflation, huh?  Inflation can occur because of a demand-push, as economists like to say.  That means when demand for something far outstrips supply, like when the price of bottled water or lumber goes through the roof (sorry) following a natural disaster.  Well, the housing bubble was a demand-push for mortgages.  Why?  Did all of the sudden a second baby boom come of age and need a house?  No.  A lot of the homes bought during the bubble were second homes or vacation homes or homes to use as rental properties or homes bought for pure speculation under the expectation that their value would increase and could be resold in a year or two for a handsome profit.  But, to be sure, there were also plenty of folks who saw it as a good time to stop renting and to buy.  Why?  Because interest rates were low, and banks weren't asking for much down payment or even proof of income.  Why and why?  Now we are really starting to get somewhere.

Interest rates were low.  Why?  Because George W. Bush and Fed Chairman Greenspan wanted them low.  They had dropped them to near nothing following the September 11 attacks, when Wall Street tumbled right along with the towers.  Well, the market then rebounded.  But the Fed kept interest rates low.  Why not raise them?  To keep them low is inflationary, especially to those products most sensitive to interest rates, like loans, and with that, homes.  I don't know why.  But Greenspan kept them low, and the President in no way pressured him to raise them.  With the lure of persistently low interest rates, people started to show up at banks and other lenders, looking for mortgages.  And home prices started to climb, and developers and home builders noticed, and started building lots of homes to meet the demand.  And deals abounded.  And banks couldn't make loans fast enough.  And more people bought, and prices climbed further and continued to climb.

At the same time, investors from around the world were looking for a safe investment that still would bring them a reasonable return.  The T-Bill, a favorite investment in the past, was out, because its interest rate was now too low, and the value of the dollar was plummeting (a not unrelated event).  And so T-Bills were not as attractive.  But America, to her credit (again, sorry) is always attractive for investors.  We are a good, safe place with free markets, where elections work and buildings rarely tumble.  Buying mortgages HAD BEEN in the past a very safe investment, since Americans rarely default on their mortgage.  Default rates had been fairly static for a long time, and that default cost had long been included in any MBS representing one or a bundle of mortgages.  So, MBS were "safe", or viewed as such by all of this international money looking for a home (zheesch).  So, as Carl Sagan would say, "billions and billions" of foreign cash began pouring into MBS, to where there weren't enough MBS.  That's right.  You can't buy a securitized mortgage if there is no mortgage to securitize.  So banks became HIGHLY incented to find new mortgagees (mortgagors?...folks buying houses) so that they could sell more mortgages, securitize them, and sell the securities to their foreign investors.  THAT'S when they started offering crazy, stupid mortgages, with little underwriting, little proof of income, little down payments, and little care in the world, because they were just going to package up the mortgages and sell the risk to someone else anyway.

Well, but aren't securities rated?  You know, A, AA, AAA, etc?  They sure are, and most of that foreign money was looking for safe, AAA-rated securities.  And here was a firewall, which, if it had held, I might not be blaming George Bush or Greenspan at all, even though they still would have screwed up by keeping interest rates so low for so long.  That's the firewall of securities ratings.  Standard and Poor, Moody's, those folks.  Somehow, somehow they rubber-stamped the grotesquely risky MBS - representing mortgages with large principal balances, no down payment, resetting interest rates, and low proven ability to pay by the borrowers -  which were coming out of the banks and their investment bank helpers like Lehman and Bear Stearns.  Whyyyyyyyyyy?

Well, partly, it's their profit model.  The more AAA ratings they give, the more banks go back to them for more ratings instead of going to one of their competitors.  That's just nuts, but it's true.  Why else?  Because banks often times had bought "insurance" for their MBS, effectively, insurance on their lendees' ability to pay.  They bought these from AIG and other large insurers, and these things were called Credit Default Swaps (CDS).  They were garbage, but, AIG was banking (grrrrh) on the same thing which the foreign investors were in going after MBS in the first place as an alternative to T-Bills - that mortgage foreclosure in America had been relatively static for a long time.  AIG built that level (far too low) of default cost into their CDS price, and with that, they thought they were good.  Easy money.  With the knowledge that an insurer was backing the credit worthiness of the utterly crummy MBS, ratings agencies went ahead and gave them AAA ratings.  And with the peace of mind of an AAA rating, and a higher return than T-Bills?....well, the foreign money bought them up as quickly as they could, guaranteeing that as soon as America sneezed, the rest of the world would catch the flu.

So, there it is.  My final wrap up on that horrible mess.  Feel free to point out my mistakes.  I would enjoy the exchange.  And the knowledge that I'm not the only one out here on this ("Is anybody out there?...there?...therrre?...therrrrrre?....").  It's a combination of bad management of the economy by the Bush administration, bad Fed policy on the part of mostly Alan Greenspan (and don't start going off about how the Fed is independent of the executive branch...blah, blah, blah...and Supreme Court Justices aren't political either), and bad securities regulation, which is the SEC, which, again, is the Bush administration.  So, there you are.  Feel free to begin hating me all over again.

Boehner Wrong Again

Part of the mission of this blog was to talk about issues which are inherently controversial, or divide people politically, and do so with style and content respectful of that.  Sometimes, though, I'm just dying to call someone a knucklehead.  John Boehner often makes me feel that way.

First of all, in all honesty, how does he keep his position as Minority Leader in the House, when Republican membership under his strategic legislative direction has diminished so much during his tenure?  How and why does his caucus stay with him?  It's true that the reduction in numbers would be an unfair thing to leave entirely at his feet.  There are plenty of factors, including the old adage that "all politics is local."  But Boehner has had no success in crafting a vision, a legislative agenda for House Republicans and the country which his caucus can advance, and he can advance from his own considerable bully pulpit, with any degree of genuine popularity or traction.  That Boehner is still there as Leader and predicted to remain so after January 20 is one of those things that makes no sense - like how Madoff got to run a Ponzi schema for over a decade, how the Miami Dolphins are good and the San Diego Chargers are not, why Madonna would leave Guy Richie for A-Rod.

There are various Republicans I love.  My liberal friends cringe at such statement, and offer the incredulous "Who??...and..why???" questions.  But, John Boehner is not one of them, nor has he been for years, or really ever since he came on the scene.  I have consistently thought, "Why does anyone care what John Boehner thinks?"  And while a whole historical progression of things has led me to that view, I'll just expound on the latest - his expressed disappointment at President Bush using $17.4 billion of TARP funds as a bridge loan to GM and Chrysler.

Ohio, John Boehner's state, remarkably, is heavily invested in the auto industry.  There is a large GM assembly plant in the state, and also a large Honda plant (everyone has said that if the domestic auto makers go down that it will adversely impact all U.S. operations whether domestic or foreign), and there may be others.  Those are just the ones I know for sure.  It's enough.  Ohio would be devastated if the auto industry went under.  One would think that would be enough for Boehner to support this kind of bridge loan with tough restrictions and a stern accompanying warning, that bankruptcy lies immediately ahead if management and labor do not come together now and make the hard choices they have avoided making for the last 10 to 20 years.  Not only did President Bush provide GM and Chrysler with a bridge they would be wise to immediately cross, but also provided a bridge as respects this crisis to the new administration.  I can't recall George Bush's exact quote, but it was something along the lines of not wanting the Obama administration to face a disaster in the auto industry on their first day.  And he's absolutely right.

With this decision, President Bush demonstrated again the trait which will be part of his legacy, that of doing what he believes to be right regardless of the political or popular fallout.  It demonstrates a tremendous inner strength, resolve, desire and willingness to lead.  I have not always agreed with his decisions.  My previous post predicted that his judgments in directing the war on terror and those in Afghanistan and Iraq may confer a critical view from history.  But for Barack Obama to be a successful president he will need George Bush's ability and willingness to lead, to be the decider, if you will, at times in the midst of stiff and vocal opposition from the public, his party, our allies or other governments.  If he is as capable and smart as I think he is, Barack Obama will, during such times, call upon the former President George W. Bush and seek his counsel, which I am confident the former president will generously give.

But, for now, it suffices to say that whatever angle Leader Boehner is working with respect to an auto bailout, even a temporary one, is motivated not by leadership, what is best for the country, or best even for his own state, but likely some miscalculated political move of the kind I've seen from him time and again over the years.  And yet, he keeps on keepin' on.  How or why is beyond me.

Catching Up

Pardon my autumnal vacation.  I don't know about the rest of you, but, perhaps like the candidates, I needed a break after the election was over and done with.

Contrary to President-Elect Obama's official line, we have two presidents at the moment, one with high approval ratings and one with low, one on his way in and the other on his way out.  I asked my brother how history will grade George W. Bush and he said it all turns on Iraq, that if 20 years from now Iraq is basically Jordon (or perhaps Lebanon), is a democracy, a partner in peace, and more a force for stability than instability in the region, then his grade could be quite good, and as with Harry Truman, a quite rehabilitated rating from his final days in office.  Under that theory, those things seen as damning elements of the Bush years, largely related to how the war was justified, planned, and pursued, including the torturing of prisoners, renditions, and suspensions of habeas corpus, will be forgotten by history in the same way history has largely forgotten Lincoln's suspension of habeas corpus, and Roosevelt's detention of Japanese Americans, at least as respects their overall performance.  I think George W. Bush is a nice man - everyone says he is - if someone with a famous name not quite ready to be president.  If Obama proves the opposite, someone unusually suited to be president, then his performance shall always be contrasted against his predecessor, and his ascension will be George Bush's decline.  And there is a sadness and unfairness to that for which I cannot quite find words.  I have said before that among the presidents of my lifetime - Nixon (well, Kennedy and Johnson, but I don't remember them), Ford, Carter, Reagan, George H.W., Clinton, and George W. - that George W. Bush is the worst, and that it's not really close.  But he is not a reprobate.  He is not a buffoon like Blagojevich.  I didn't like the way he led this country, but I suspect I would like talking to him.  And as a president from my lifetime, and eight years of it, it makes me sad to feel as I do, that history will not treat this president well, Iraq's possible rehabilitation notwithstanding.

Regarding Blago.  I wrote a post after John Edwards' affair and pathetic explanation for same that he needed to go away, far away.  The only space on this blog Blago deserves is just enough to say that Blago needs to go still further away, and Patrick Fitzgerald is going to help him.

A lot of people are down on Paulson.  Newt called him the worst Treasury Secretary ever.  Now, Newt's pretty smart, but he didn't make a lot of sense.  He sounded to me like he was trying to carve out some new/old political territory by suggesting that rather than spend the money as Paulson has, largely, in direct recapitalizations of the banks through the purchase of preferred stock, the money instead be given to the American people as a two-month holiday from any and all taxes.  For two months - your full pay check, no tax deductions.  Newt can be political, too, and this was Newt stroking the favorite of all conservative / Republican rabbit's foots - tax cuts - as the solution to anything economically ailing us.  He knows, as Paulson, the President, and a host of others in the Congress have said, and various Wall Street types have testified to under oath, that the crisis in the financial markets is a liquidity crisis resulting from large bank portfolios of mortgage-backed securities rapidly declining in value as a result of the mortgage crisis.  Under law, banks have to estimate their asset worth in terms of what their capital assets are worth right now.  Well, right now their worth is considerably lower.  Further, by law, banks can only lend at some maximum ratio of their capital, meaning by law their ability to lend is now commensurately reduced.  If Paulson in effect gives them capital - trades dollars for the bank's preferred stock - then bank capital increases instantly and they can lend again based on the legal ratio of lending to capital.  Historically, this is how financial crises have been dealt with, along with subsequent regulatory changes to address the causes.  Before we had a Federal Reserve, banks and bankers (like J.P. Morgan) organized these rescues themselves.  Anyway, Newt knows that if the American people were given the financial bailout money in the form of a tax cut, that some portion would be saved (therefore, increasing bank capital in the form of increased savings deposits), and some portion would be spent, leading to an increase in economic activity, which, as with any stimulus, would eventually boost GNP (and with that, wealth, and with that, bank capital), but where if the phrase "liquidity crisis" is in fact accurate, that the whole process is a far slower response than a direct recapitalization of the banks.  In no previous banking crisis was a large tax cut the adopted approach.  Taxes, whether an increase or decrease, are always a longer-term strategy.

So, I like Newt, but I don't know what he was talking about there.  Paulson is doing the right thing.  But I also think the Obama team is correct on this issue, that management of the crisis requires both recapitalizing banks and stemming foreclosures, since it is the increase in foreclosures which directly leads to the devaluation of mortgage-backed security portfolios, and with that a decrease in capital and lending power of the banks.  And, besides, personally, I'd like to see some help directly reach mainstreet.  With all the bailouts and everything else, that would be a nice turn of events.

So how's Obama doing?  Ok, so far.  Am I the only one who thinks Kathleen Sebelius for DHS is kind of a weak pick?  First of all, I hope Obama renames the agency.  The word "homeland" has been used in fascist Germany and other times in history to swell a jingoistic form of us-and-them nationalism which, per my earlier comments, I see as among the historic missteps of the Bush administration.  A change to Department of National Security would be welcome.  Back to Ms. Sebelius, though, she seems to have no background in that which she shall lead.  It makes her appointment the most curious to me.  However I generally like Obama's other picks.  Better to have Hillary with you than against you - besides, I think a genuine respect has developed between the two of them.  And the security team minus Sebelius is brilliant - General James Jones, an excellent pick, and keeping Bob Gates for probably as long as Gates wants to stay.  I am a big fan of his, and I hope he stays longer than the rumored year.  The economic team is equally smart.  In the end, though, it will be Obama's judgment on which everything else turns.  A Sunday talking-head reminded the rest of the roundtable that Kennedy also signed on the "best and the brightest", and they led us promptly into the Vietnam war.  Now, perhaps Kennedy was shot before he had the opportunity to reverse that decision, but the steady and predictable transformation from dark hair to white hair is testament to the fact that the important policies, strategies, and decisions all fall to the president.  But, so far, so good.