2009 - %3, March

Holbrooke Calls for "Complete Rethink" of Drugs in Afghanistan

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| Fri Mar. 27, 2009 12:44 PM PDT
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This morning, after President Barack Obama unveiled his new Afghanistan policy, three senior administration officials held an on-the-record (but no cameras) briefing for White House reporters. Ambassador Richard Holbrooke, the special envoy for Afghanistan and Pakistan, Bruce Riedel, chair of the Afghanistan policy review, and Michèle Flournoy, undersecretary of defense for policy, hammered home the points that Obama had made: that this policy has a concise and clear goal (protecting Americans from al Qaeda by making sure this terrorist band does not have any safe havens in Afghanistan or Pakistan), that it has a regional focus (Afghanistan and Pakistan), and that it has a strong civilian component (i.e., sending not just more troops, but more advisers to work on development and related matters). They did not talk timelines, deadlines, costs, or exit strategies. They did repeatedly refer to benchmarks and flexibility.

I asked if this review had addressed Obama's previous complaint that the national government in Afghanistan is "detached" from the rest of the country and whether any of the development envisioned by the review could be accomplished given the widespread and profound corruption in Afghanistan. Holbrooke fielded this one:

I would just point you to the fact that no American chief executive has spoken about corruption this way ever before in open. Isn't that a fair statement, Bruce? And on the way out, a former Assistant Secretary of State, who many of you know, but I better not give his name, since he isn't...said to me, I've been waiting six years to hear a speech like that, and the emphasis on corruption is essential. You've all been reporting it for years. We view it as a cancer eating away at the country and it has to be dealt with. And obviously we're not going to lay out how we're going to deal with it. To some extent, we don't know yet. There's so much dispute about it. Senators have talked about it, including senators who are now President, Vice President and Secretary of State. And they bring what they said as senators to this issue.

And speaking for myself, I've written about it a lot. I don't take back anything I ever wrote as a private citizen. Now we've been offered the extraordinary challenge of trying to deal with this problem. And we're here to say, it is at the highest levels. Why? This isn't baksheesh. We've got to make a distinction between ordinary problems that happen in every society. This is massive efforts that undermine the government. President Karzai himself has said this, and we need to work on this. It's a huge recruiting draw—excuse me, huge recruiting opportunity for the Taliban. It's one of their major things they exploit. But I can't lay out to you how exactly we're going to do this. We're just starting out. And by the way, we're in the middle of an election campaign in Afghanistan, which complicates everything enormously.

So here Holbrooke was acknowledging the significance of the corruption issue, somewhat eloquently and candidly, yet he could not say how it might be addressed. As for Karzai's government being "detached," he didn't go there.

Holbrooke is a wonderfully engaging character—an old-school power player. He schmoozes reporters, coming across as intelligent, crafty, and concerned. He is a charmer who knows his stuff. He won't no-comment a tough question; he will compliment the reporter on posing an insightful query, show he fully understands the issue at hand (which he does), and then explain he can't answer it—in a manner that can be convincing, not annoying.

But at the end of the briefing, Holbrooke did speak somewhat candidly about a vexing part of the Afghanistan problem: drugs. What to do about the opium flowing out of Afghanistan has always been a knotty element of US policy regarding Afghanistan. How much of a priority should it be? (Simply put, if you attack the the opium trade, warlords and locals get pissed off and join or support the other side.) Asked about the priority of drug fighting in the Afghanistan review, Holbrooke, as he was leaving the briefing, said "We're going to have to rethink the drug problem." That was interesting. He went on: "a complete rethink." He noted that the policymakers who had worked on the Afghanistan review "didn't come to a firm, final conclusion" on the opium question. "It's just so damn complicated," Holbrooke explained. Did that mean that the opium eradication efforts in Afghanistan should be canned? "You can't eliminate the whole eradication program," he exclaimed. But that remark did make it seem that he backed an easing up of some sort. "You have to put more emphasis on the agricultural sector," he added.

For years, officials of the US government and other government have pondered what to do about the poppy fields of Afghanistan. Holbrooke indicated he favors a significant shift in this front of the war on drugs. But what specific policy does he fancy? He offered no clues, and then began talking to several reporters in French. Whatever he was saying, it sounded quite good.

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Friday Cat Blogging - 27 March 2009

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| Fri Mar. 27, 2009 12:10 PM PDT
Today is rolling around in the sun day.  On the left, Domino is rolling around in the wood-chippy dirt where the Jacaranda used to be, getting herself filthy beyond belief in the process.  But she sure enjoyed herself.  On the right, Inkblot prefers the cleaner approach of rolling around on the patio instead.  Either way, it's highly recommended therapy.  Weather permitting, you should try rolling around in the spring air yourself this weekend.  It can't hurt, and it might help.

Too Big To Fail

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| Fri Mar. 27, 2009 11:58 AM PDT
Last night I made the argument that focusing on crude firm size wasn't the right way to look at our current banking crisis.  It's the overall industry size that's important, not the size of individual banks.

But if you disagree, James Kwak makes about the best case for the prosecution that I've seen yet, suggesting that a financial industry with lots of midsize companies would work just fine:

What would such a world look like? There would be a lot of small- and medium-sized banks that collected deposits and lent money to households and businesses. There would be brokerage and asset management firms that you used to invest your savings. There would be hedge funds and private equity firms that rich people and other institutional investors used to invest their money. There would be investment banks that helped companies issue equity and debt securities. There would be boutique firms that did research and other boutiques that M&A advising. For any financial service anyone wanted, there would be a company that provided that service; it just wouldn’t necessarily provide every other service, and it wouldn’t have $2 trillion in assets. It would look something like the 1970s.

What’s wrong with this picture? Some people would argue that it would limit financial innovation....Some would argue that costs would be higher, because smaller firms would be less able to capture economies of scale and scope....To some people, the idea of size caps will seem anti-capitalist (or even un-American)....

Kwak addresses all of these issues fairly persuasively.  But to me it still has the flavor of a solution that's clear, simple, and wrong.  After all, Bear Stearns was a quarter the size of Citigroup, and it was considered too big to fail.  So just what would the limit be on bank size?  $500 billion in assets?  $200 billion? Can a country the size of the United States even have nationwide banks with limits like that?  And what happens the next time around, when all these smallish banks overleverage themselves and collapse en masse?  Are we any better off than we are with a few big banks failing?

The whole post is worth reading, but I have a feeling that nostalgia for the 70s just isn't going to work.  Big companies are here to stay, and I suspect that any regulation stringent enough to keep banks small enough to fail won't be sustainable.  And unless we reign in overleverage and massive waves of credit expansion, it won't do any good anyway.  The same thing will happen again, just in a slightly different way.

Zero-Based Budgeting

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| Fri Mar. 27, 2009 11:17 AM PDT
I didn't post about this when it happened, but yesterday the Republican brain trust in the House decided to show their seriousness about cutting the deficit by publishing a "budget" that contained no actual numbers.  The press mostly thought it was pretty comical, and today Eric Cantor and Paul Ryan tried to pretend that they had nothing to do with this project and were only bullied into supporting it.  Matt Yglesias isn't buying:

Reps Ryan and Cantor saw that the press was reacting poorly to the Boehner/Pence flim-flam “budget” and decided to throw their colleagues under the bus. And, frankly, I’m not surprised that Ryan and Cantor were surprised. I was surprised, too. I’ve never really seen political reporters get outraged before about the fact that a policy document makes no sense in the past. It was a curious outbreak of substance among the press corps that I don’t think was particularly foreseeable.

I guess that's a fair point: it is a little unusual for the press to call BS for what it is.  At the same time, it's also worth noting just how invisible this whole exercise was.  It got lots of mockery in the blogosphere, and it also showed up on political shows like Maddow and Olbermann, but aside from that it wasn't so much ridiculed as ignored.  If you get your news from the New York Times or NPR or Katie Couric, you'd barely even know this had happened, let alone that everyone thought it was ridiculous.

Chinese-Made Drywall: The Next Tainted Product Crisis?

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| Fri Mar. 27, 2009 10:46 AM PDT
Chinese-made drywall releases a rotten egg smell and might be corroding household wiring and causing health problems. It was installed throughout the Gulf Coast region in the wake of Hurricane Katrina as U.S.-made drywall became scare in the midst of the housing boom. One hundred and fifty homeowners have complained about drywall odors to the Florida Health Department; the large homebuilder, Lennar Corp., has been forced to rip out walls and is suing Chinese drywall companies; and the U.S. Consumer Product Safety Commission is investigating whether the drywall is posing a potential safety hazard. The Wall Street Journal, the only national paper that has covered the issue extensively, wonders if Chinese drywall is the "new mold." It's certainly the new toy or dog food, other Chinese product lines that have proven potentially dangerous and led to recalls. The drywall scare will compound the housing crisis by further burdening struggling builders and homeowners. And it points to the hollowness of the housing boom in the context of the global economy. Even our homes weren't made at home, and the housing boom has imported toxic assets to Main Street in more ways than one.

Global Capital Flows

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| Fri Mar. 27, 2009 10:21 AM PDT
That's an exciting headline, isn't it?  But it's important.  One of the key bits of financial deregulation over the past three decades has been the dismantling of capital controls, allowing vast tidal waves of money to flow between borders without hindrance.  In general, this has been a plus: nobody in Britain wants to go back to the days of sleeping on continental friends' couches because they weren't allowed to take more than 50 pounds out of the country. On the other hand, the Asian currency crises of the late 90s were largely due to unsustainable amounts of unregulated foreign capital suddenly flowing into the region (and then just as suddenly stopping), and the current banking crisis in the U.S. is at least partly due to an overreaction to the Asian crisis.  For the past decade all that Asian money has been flowing into the U.S. instead, and a tsunami of cheap money was one of the factors that caused the credit and housing bubble of the past few years.  Megan McArdle examines her free trade beliefs on this score:

[This suggests] that global capital flows may be way more problematic than I have historically been willing to credit.  I don't want to blame all bubbles on foreign money.  But foreign money has two unpleasant characteristics:  there is so much of it that it can relatively easily swamp a nation's productive capacity, and it is relatively uninformed about the local market.

I'm not sure where that leaves me.  The capital controls of the mid-twentieth century were even worse, especially for emerging markets, where they became both focal points for, and sources of, massive corruption.  And one of the reasons America today is such a massively successful economy is that foreign money funded our industrialization.  Bubbles may simply be an inescapable side effect.  But perhaps it's time to rethink a commitment to global capital liberalization.

I'm not sure where it leaves me, either, especially since this has been an active subject of conversation for a decade already and hasn't produced anything even close to a consensus.  But this does seem like the kind of topic that lends itself to my "sand in the gears" theory: we don't need to reinstate capital controls, we just need to slow down the flow of global capital ever so slightly.  Even a tiny tax on foreign capital flows could have a significant impact.  Ideas welcome on this score.

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Lights Out...Forever?

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| Fri Mar. 27, 2009 9:56 AM PDT
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Earth Hour starts at 8:30 PM tomorrow. Yet as people around the world prepare to throw the switch to enlighten others about climate change, I'm mildly freaked about the prospect of the lights going out for good. New Scientist reports that NASA and the National Academies of Science are pretty concerned about giant solar plasma balls wiping out the world's power grids in an instant. And not just for an hour or two; we're talking months or years—or at least until someone figures out a way to make more electrical transformers without using electricity. (Read the full report here.) Such a "space weather Katrina," as the NAS helpfully describes it, could literally be the beginning of a new dark age. Oh, and of course, the next round of solar flare-ups is scheduled to start in—when else?— 2012.

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Bush Leaves Legacy of Fraud and Abuse At Small Business Administration

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| Fri Mar. 27, 2009 9:42 AM PDT

It's been a rough decade for the Small Business Administration. The Bush administration slashed its budget by more than half, and many of its most experienced and knowledgeable employees were let go. To make matters worse, multiple investigations have found evidence of waste, fraud, and abuse at the agency, which is supposed to help small businesses drive economic growth. On Wednesday, the embattled agency was dealt another blow when the Government Accountability Office revealed that the SBA's $8 billion program designed to funnel government contracts to small businesses in poor areas gave millions to companies that did not meet the legal requirements, including one that was "headquartered" in a trailer home occupied by someone unrelated to the company. Some of the owners of the "small businesses" in question admitted straight-out to the GAO that they were defrauding the SBA's HUBZone program by funnelling money to big businesses or businesses outside the zones.

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Benchmarks, Again

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| Fri Mar. 27, 2009 9:34 AM PDT
The New York Times reports on Obama's plan to get serious in Afghanistan:

President Obama plans to further bolster American forces in Afghanistan and for the first time set benchmarks for progress in fighting Al Qaeda and the Taliban there and in Pakistan, officials said Thursday.

....Although the administration is still developing the specific benchmarks for Afghanistan and Pakistan, officials said they would be the most explicit demands ever presented to the governments in Kabul and Islamabad....American officials have repeatedly said that Afghanistan has to make more progress in fighting corruption, curbing the drug trade and sharing power with the regions, while they have insisted that Pakistan do more to cut ties between parts of its government and the Taliban. Mr. Obama telephoned President Hamid Karzai of Afghanistan and President Asif Ali Zardari of Pakistan on Thursday to share the main elements of the strategic review.

I was a big proponent of setting benchmarks and milestones in Iraq, so I can hardly complain about this without grossly contradicting my past instincts.  But I guess you can just call me Walt Whitman this morning, because at a gut level something about this whole plan makes my blood run cold.  It's so McNamara-ish I can practically see him making the announcement in my mind's eye.

On a less purely emotional level, the key thing here is how Obama plans to make these benchmarks credible.  The problem with benchmarks in a war like this has always been the unlikelihood that an American president will withdraw troops without at least pretending to have achieved victory.  I mean, how do you do it?  Withdrawing support piecemeal because specific benchmarks in specific regions haven't been met makes no sense tactically, but stepping up to the press room podium one day and announcing, "We're losing, so we're pulling out" is political suicide, and everyone knows it.

In related Afghanistan news, David Brooks becomes about the millionth person to kinda sorta change his mind about one of our overseas quagmires after visiting in person and getting six days of full-court press treatment from the folks on the ground.  The arc of his column was so predictable I practically could have written it myself.

For something different, check out Sarah Chayes, an aid worker in Kandahar province.  She admits that things are going badly, but guess what?  That's a reason to double down too.  "The answer is not to lower the bar but to raise it. What is needed is some of that patented Obama 'Yes, we can!' energy."  Sigh.

OK, fine: I'm in a sour mood this morning.  Just consider this a vent.  But I can't say that anything I've read or heard makes me more optimistic about Afghanistan today than I was yesterday.  I sure as hell hope that Obama knows what he's doing.

Insert Headline Here

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| Fri Mar. 27, 2009 9:00 AM PDT
Speaking of the LA Times, check this out.  Jeebus.  You kinda hate to kick someone when they're down, but they still have a few editors left on the copy desk, don't they?