Monday, March 23, 2009

Iran Has Started an Arms Race in the Mideast and Beyond

Iran Has Started a Mideast Arms Race. By Amir Taheri
States throughout the region are looking to establish nuclear programs.
WSJ, Mar 23, 2009

In the capitals of Western nations, Abdul Qadeer Khan, the man regarded as the father of the Pakistani atom bomb, is regarded as a maverick with a criminal past. In addition to his well-documented role in developing a nuclear device for Pakistan, he helped Iran and North Korea with their nuclear programs.

But since his release from house arrest a month ago, Mr. Khan has entertained a string of official visitors from across the Middle East. All come with messages of sympathy; and some governments in that region are looking to him for the knowledge and advice they need to fast track their own illicit nuclear projects.

Make no mistake: The Middle East may be on the verge of a nuclear arms race triggered by the inability of the West to stop Iran's quest for a bomb. Since Tehran's nuclear ambitions hit the headlines five years ago, 25 countries -- 10 of them in the greater Middle East -- have announced plans to build nuclear power plants for the first time.

The six-nation Gulf Cooperation Council (Saudi Arabia, Kuwait, Bahrain, Qatar, the United Arab Emirates [UAE] and Oman) set up a nuclear exploratory commission in 2007 to prepare a "strategic report" for submission to the alliance's summit later this year. But Saudi Arabia is not waiting for the report. It opened negotiations with the U.S. in 2008 to obtain "a nuclear capacity," ostensibly for "peaceful purposes."

Egypt also signed a nuclear cooperation agreement, with France, last year. Egyptian leaders make no secret of the fact that the decision to invest in a costly nuclear industry was prompted by fears of Iran. "A nuclear armed Iran with hegemonic ambitions is the greatest threat to Arab nations today," President Hosni Mubarak told the Arab summit in Riyadh, Saudi Arabia two weeks ago.

Last November, France concluded a similar nuclear cooperation accord with the UAE, promising to offer these oil-rich lands "a complete nuclear industry." According to the foreign ministry in Paris, the French are building a military base close to Abu Dhabi ostensibly to protect the nuclear installations against "hostile action," including the possibility of "sensitive material" being stolen by terrorist groups or smuggled to Iran.

The UAE, to be sure, has signed a cooperation agreement with the U.S. forswearing the right to enrich uranium or produce plutonium in exchange for American nuclear technology and fuel. The problem is that the UAE's commercial hub, the sheikhdom of Dubai, has been the nerve center of illicit trade with Iran for decades, according to Western and Arab intelligence. Through Dubai, stolen U.S. technology and spent fuel needed for producing raw material for nuclear weapons could be smuggled to Iran.

Qatar, the smallest GCC member by population, is also toying with the idea of creating a nuclear capability. According to the Qatari media, it is shopping around in the U.S., France, Germany and China.

Newly liberated Iraq has not been spared by the new nuclear fever. Recall the history. With help from France, Iraq developed a nuclear capacity in the late 1970s to counterbalance its demographic inferiority vis-à-vis Iran. In 1980, Israel destroyed Osirak, the French-built nuclear center close to Baghdad, but Saddam Hussein restored part of that capacity between 1988 and 1991. What he rebuilt was dismantled by the United Nations' inspectors between 1992 and 2003. But with Saddam dead and buried, some Iraqis are calling for a revival of the nation's nuclear program as a means of deterring "bullying and blackmail from the mullahs in Tehran," as parliamentarian Saleh al-Mutlaq has put it.

"A single tactical nuclear attack on Basra and Baghdad could wipe out a third of our population," a senior Iraqi official told me, on condition of anonymity. Since almost 90% of Iraqis live within 90 miles of the Iranian border, the "fear is felt in every town and village," he says.

Tehran, meanwhile, is playing an active part in proliferation. So far, Syria and Sudan have shown interest in its nuclear technology, setting up joint scientific committees with Iran, according to the official Islamic Republic News Agency. Iranian media reports say Tehran is also setting up joint programs with a number of anti-U.S. regimes in Latin America, notably Venezuela, Bolivia, Nicaragua and Ecuador, bringing proliferation to America's backyard.

According to official reports in Tehran, in 2006 and 2007 the Islamic Republic also initialed agreements with China to build 20 nuclear-power stations in Iran. The first of these stations is already under construction at Dar-Khuwayn, in the oil-rich province of Khuzestan close to the Iraqi border.

There is no doubt that the current nuclear race in the Middle East is largely prompted by the fear of a revolutionary Iran using an arsenal as a means of establishing hegemony in the region. Iran's rivals for regional leadership, especially Turkey, Egypt and Saudi Arabia, are aware of the propaganda appeal of the Islamic Republic's claim of being " the first Muslim superpower" capable of defying the West and rivaling it in scientific and technological fields. In that context, Tehran's development of long-range missiles and the Muslim world's first space satellite are considered political coups.

Mohamed al Quwaihis, a member of Saudi Arabia's appointed parliament, the Shura Council, warns of Iran's growing influence. Addressing the Shura Council earlier this month, he described Iranian interferences in Arab affairs as "overt," and claimed that Iran is "endeavoring to seduce the Gulf States, and recruit some of the citizens of these countries to work for its interests."

The Shura devoted a recent session to "the Iranian threat," insisting that unless Tehran abandoned its nuclear program, Saudi Arabia should lead the Arabs in developing their own "nuclear response." The debate came just days after the foreign ministry in Riyadh issued a report identifying the Islamic Republic's nuclear program as the "principal security threat to Arab nations."

A four-nation Arab summit held in the Saudi capital on March 11 endorsed that analysis, giving the green light for a pan-Arab quest for "a complete nuclear industry." Such a project would draw support from Pakistan, whose nuclear industry was built with Arab money. Mr. Khan and his colleagues have an opportunity to repay that debt by helping Arabs step on a ladder that could lead them to the coveted "threshold" to becoming nuclear powers in a few years' time.

Earlier this month, Mohamed ElBaradei, the retiring head of the International Atomic Energy Agency, warned that the Nuclear Nonproliferation Treaty has become a blunt instrument in preventing a nuclear arms race. Meanwhile, the U.S., France, Russia and China are competing for nuclear contracts without developing safeguards to ensure that projects which start as peaceful undertakings are not used as cover for clandestine military activities.

The Obama administration should take the growing threat of nuclear proliferation seriously. It should try to provide leadership in forging a united response by the major powers to what could become the world's No. 1 security concern within the next few years.

Mr. Taheri's new book, "The Persian Night: Iran Under The Khomeinist Revolution," is published by Encounter Books.

Federal President's Latest Appointments with the FDA - Joshua Sharfstein

Obama's Latest Troubling Appointments with the FDA. By Jeff Stier, Esq.
American Council on Science and Health, Wednesday, March 18, 2009

The president tapped into broadly held public sentiment in his radio address on Saturday, calling for reform at the Food and Drug Administration. But understanding why his assertion that the government can ensure "the medicines we take...don't cause harm" is simplistic can also help us understand why his choice for the person who will have that impossible responsibility is folly.
In naming Dr. Joshua Sharfstein as deputy commissioner, the president decided that absolute drug safety should come first--even at the cost of the drugs' availability to sick patients. That doesn't bode well for our chances of getting the new medications needed to keep pace with our enviable improvements in quality of life and life expectancy.

Let's be clear: There is no such thing as a "safe" medication. All medications come with benefits and risks. It is the role of a physician to work with the patient to evaluate each person's unique circumstances to decide whether the benefits of a drug outweigh the risks. That calculation is different for everyone and, whenever possible, should be made in the doctor's office rather than a federal agency. I doubt whether the president or his new appointment agree.

An evaluation of his work makes it clear where Dr. Sharfstein falls on the spectrum between those who see the companies he is about to regulate as part of the problem or part of the solution. Dr. Sharfstein's relatively brief career is rich with examples of criticism of pharmaceutical companies--including his stint working for anti-pharmaceutical crusader Sidney Wolfe--plus support for safe-seeming but failed policies and initiatives that grab adoring headlines but do little to fix serious problems.

His shortsighted, partisan and perversely populist "attack big pharma" approach won't work at this critical time when major reform is in order. Change of this type calls for the ability to bring various and sometimes opposing stakeholders together.

Sharfstein, only 39, has a long history of antagonizing the pharmaceutical industry. Consider the example recently reported online by Scientific American, based on an October 1992 report in the Harvard Crimson, written when Sharfstein was a first-year medical student. He led a student campaign urging classmates to return textbooks donated by a pharmaceutical company.

Sharfstein and his group wrote that the texts "are paid for by consumers in the form of higher drug prices. Accepting gifts from companies violates an ethical obligation to our future patients." They set up a drop-box where, like a gun amnesty program, students were guilted to return the books. Fortunately, at the time of the Crimson report, only eight books had been returned. (Sharfstein told the Crimson that more had been returned, but some had been stolen from the box.) Even back then, it seems, Dr. Sharfstein was way to the left of his colleagues.

It is not fair to predict an official's approach to issues based only on his activism in school. But young Dr. Sharfstein's "us vs. them" view toward the pharmaceutical industry was not an outlier--it was a template for his future career. He went on to work for Rep. Henry Waxman, D-Calif., who personifies the divisive approach, which seeks to persecute innovative pharmaceutical companies.

I talked with Dr. Sharfstein while he was working on Rep. Waxman's legislation that would give the FDA authority to regulate tobacco. I tried to encourage him to be open to the concept of harm reduction for smokers. The approach would allow makers of smokeless tobacco to explain that their product was less harmful than cigarettes. Dr. Sharfstein impressed me with his familiarity of the evidence from Sweden supporting this way to help smokers reduce their risk from tobacco.

What startled me was that despite his knowledge of the facts, he was still ardently against it. Rather than acknowledge the complexity of the issues and the need to weigh the pros and cons, he dismissed the approach out of hand, choosing instead the "quit or die" approach that has been failing smokers for years. I believe his rigid ideology overshadowed his willingness to support a different, but scientifically valid, way of thinking about the country's leading public health problem.

During his tenure as commissioner of health in Baltimore, he continued to grab headlines with initiatives that drew him praise but failed to solve serious problems. Take for instance his approach to a real but diminishing public health problem: childhood lead poisoning.

Dr. Sharfstein campaigned for the notion that there is "no safe level" of exposure to lead. Yet there is little scientific support for this view. Citizens would have been better served had the commissioner placed his emphasis on the scientifically sound goal of eliminating chipping and peeling lead paint in Baltimore's inner city.

Twenty years ago, nearly a quarter of the children tested in Baltimore had elevated blood lead levels (a much lower level than that considered "lead poisoned"). Today, only 3.5% of the children tested have that level. Similar improvements across the country can be traced to the removal of lead from gasoline and interior paint over a generation ago. There is no evidence that extremely low levels of lead contribute to lead poisoning.

Dr. Sharfstein's misguided approach is the type of distorted policymaking that brought us the hugely unpopular Consumer Produce Safety Improvement Act (CPSIA), championed by his former boss, Rep. Waxman, which today is putting thousands of people out of work, causing stores to throw away safe merchandise and not making anyone any safer. This history sheds a troubling light on how Dr. Sharfstein would deal with today's most pressing and controversial issues relating to the complex and sensitive task of regulating pharmaceuticals.

The job, especially now, takes nuance and the ability to weigh benefits and risks. And it requires a willingness to put partisan approaches aside so the agency can endorse the best available science. Certainly Dr. Sharfstein has tipped his hand to how he would deal with calls by activists to forbid free drug samples to consumers. Would he allow FDA panels to benefit from top experts? Or would he consider them bias if they ever worked for industry. Would he hold anti-industry scientists to the same tough standards?

His record indicates he would blacklist scientists who were capable enough to be hired by companies and leave panels skewed with scientists who were either not competent enough to get jobs--or so anti-industry that they refused to work for them in the first place. This would hamper the agency's ability to evaluate complex science above the fray of politics. A deputy commissioner so invested against the success of the pharmaceutical industry is poised to fail consumers.

Perhaps Dr. Sharfstein's reputation for stridency explains the reported move to split the agency--one part headed by Dr. Margaret Hamburg, who will serve as commissioner for food and tobacco (if the agency gets control of it) and one part with Dr. Sharfstein as deputy commissioner fully responsible for pharmaceutical issues. This allows Dr. Sharfstein to act as FDA commissioner with regard to medicine, while circumventing a Senate confirmation, where senators who don't share his vitriol for drugmakers were prepared to ask him tough questions about his views. So much for a new, transparent way of doing the people's business in Washington.

In his Inaugural address, the president promised to "restore science to its rightful place." With this appointment, he has taken a step in the wrong direction.

Jeff Stier is an associate director of the American Council on Science and Health.

Populist Anger Is Hard to Contain - The president could have spoken more responsibly about AIG

Populist Anger Is Hard to Contain. By SUZANNE GARMENT
The president could have spoken more responsibly about AIG.
WSJ, Mar 23, 2009

Last week's collective screech about the AIG bonuses should leave the participants shaken, the way you feel when you've done something really stupid in traffic and realize you could have killed yourself. Populism is dangerous. The AIG death threats gave us an inkling of just how dangerous. A political leader can't simply stir up a little bit of populism, then turn it off when it gets inconvenient -- not even a leader as eloquent as President Barack Obama.

When Edward Liddy, AIG's government-appointed CEO, made Treasury Secretary Tim Geithner aware that bonuses would be paid to employees of AIG's Financial Products unit -- which had virtually destroyed AIG, prompting a $173 billion bailout -- the administration didn't want to be the chief target of the criticism that would follow. It decided to get out in front, as chief criticizer. First, White House economist Larry Summers said that AIG's behavior was "outrageous" but that the bonus contracts could not be abrogated. "We are a nation of laws," he said, and an administration "can't govern out of anger."

Some presidential advisers thought the "outrageous" part wasn't plain enough. So the next day Mr. Obama angrily denounced AIG's "recklessness and greed" and said he would "pursue every single legal avenue" to block the bonuses.

Mayhem followed. The calls and emails poured in. Virtually every member of Congress assured the public of his or her personal anger and disgust. Last Wednesday, Mr. Liddy appeared before a House subcommittee as a prop for a Congressional Day of Rage. At the end of the week the House passed its 90% surtax on the bonuses. By then, there were protesters in the streets, threats of bodily harm to AIG employees, and beefed-up security at their homes. A legislative clawback of the bonuses may now be unnecessary. The employees have been asked to give them back, which suddenly seems like the best of a set of bad options, law or no law.

Within hours after Mr. Obama's initial anger announcement, the White House started trying to turn down the temperature -- without giving up its position at the head of the outrage parade. "I don't want to quell anger," Mr. Obama said. "I think people are right to be angry. I'm angry. What I want us to do, though, is channel our anger in a constructive way." At week's end, with the Senate working on its own clawback bill, White House Press Secretary Robert Gibbs said the president would judge any such bill according to whether it adequately reflected "taxpayer anger and frustration" and whether it maintained "our ability to stabilize the financial system and ensure that credit flows."

These statements are clever and ridiculous. You can't "channel" this kind of anger, let alone constructively. Populist anger is often illiberal and indiscriminate. The post-Civil War populist movement brought needed changes but also disenfranchised African-Americans in the South through Jim Crow laws and physical terror. As historian Richard Hofstadter noted in his famous book "The Age of Reform" (1955), the connection was not accidental. Further, Hofstadter cautioned, it is hard for political leaders to see the moment at which a populist outburst "has passed beyond the demand for necessary reforms" to "the expression of a resentment so inclusive" that it attacks the capacity of society to sustain values such as the rule of law.

It is one of the miracles of American politics that this type of misjudgment hasn't occurred more often and that populist excess has not done more damage. We should not take the miracle for granted.

Presidential adviser David Axelrod, explaining why Mr. Obama supplanted Mr. Summers's early statement about the bonuses with an angrier one, said that while Mr. Summers had to weigh the effect of the government's actions on its ability to manage the financial system, "the president's job is to speak for the country."

That is deeply wrong. Precisely because the president speaks for the country, it is his job, and not just Mr. Summers's job, to weigh the economic consequences of his words. The president's job is not to express populist anger but to address the anger and talk sense to it.

Ms. Garment, a tax attorney, is the author of "Scandal: The Culture of Mistrust in American Politics" (Random House, 1991).

Treasury Sec Tim Geithner: My Plan for Bad Bank Assets

My Plan for Bad Bank Assets. Treasury Sec Tim Geithner
The private sector will set prices. Taxpayers will share in any upside.
WSJ, Mar 23, 2009

The American economy and much of the world now face extraordinary challenges, and confronting these challenges will continue to require extraordinary actions.

No crisis like this has a simple or single cause, but as a nation we borrowed too much and let our financial system take on irresponsible levels of risk. Those decisions have caused enormous suffering, and much of the damage has fallen on ordinary Americans and small-business owners who were careful and responsible. This is fundamentally unfair, and Americans are justifiably angry and frustrated.

The depth of public anger and the gravity of this crisis require that every policy we take be held to the most serious test: whether it gets our financial system back to the business of providing credit to working families and viable businesses, and helps prevent future crises.

Over the past six weeks we have put in place a series of financial initiatives, alongside the Recovery and Reinvestment Program, to help lay the financial foundation for economic recovery. We launched a broad program to stabilize the housing market by encouraging lower mortgage rates and making it easier for millions to refinance and avoid foreclosure. We established a new capital program to provide banks with a safeguard against a deeper recession. By providing confidence that banks will have a sufficient level of capital even if the outlook is worse than expected, more credit will be available to the economy at lower interest rates today -- making it less likely that the more negative economy they fear will take place.

We started a major new lending program with the Federal Reserve targeted at the securitization markets critical for consumer and small business lending. Last week, we announced additional actions to support lending to small businesses by directly purchasing securities backed by Small Business Administration loans.

Together, actions over the last several months by the Federal Reserve and these initiatives by this administration are already starting to make a difference. They have helped to bring mortgage interest rates near historic lows. Just this month, we saw a 30% increase in refinancing of mortgages, which means millions of Americans are taking advantage of the lower rates. This is good for homeowners, and it's good for the economy. The new joint lending program with the Federal Reserve led to almost $9 billion of new securitizations last week, more than in the last four months combined.

However, the financial system as a whole is still working against recovery. Many banks, still burdened by bad lending decisions, are holding back on providing credit. Market prices for many assets held by financial institutions -- so-called legacy assets -- are either uncertain or depressed. With these pressures at work on bank balance sheets, credit remains a scarce commodity, and credit that is available carries a high cost for borrowers.

Today, we are announcing another critical piece of our plan to increase the flow of credit and expand liquidity. Our new Public-Private Investment Program will set up funds to provide a market for the legacy loans and securities that currently burden the financial system.

The Public-Private Investment Program will purchase real-estate related loans from banks and securities from the broader markets. Banks will have the ability to sell pools of loans to dedicated funds, and investors will compete to have the ability to participate in those funds and take advantage of the financing provided by the government.

The funds established under this program will have three essential design features. First, they will use government resources in the form of capital from the Treasury, and financing from the FDIC and Federal Reserve, to mobilize capital from private investors. Second, the Public-Private Investment Program will ensure that private-sector participants share the risks alongside the taxpayer, and that the taxpayer shares in the profits from these investments. These funds will be open to investors of all types, such as pension funds, so that a broad range of Americans can participate.

Third, private-sector purchasers will establish the value of the loans and securities purchased under the program, which will protect the government from overpaying for these assets.

The new Public-Private Investment Program will initially provide financing for $500 billion with the potential to expand up to $1 trillion over time, which is a substantial share of real-estate related assets originated before the recession that are now clogging our financial system. Over time, by providing a market for these assets that does not now exist, this program will help improve asset values, increase lending capacity by banks, and reduce uncertainty about the scale of losses on bank balance sheets. The ability to sell assets to this fund will make it easier for banks to raise private capital, which will accelerate their ability to replace the capital investments provided by the Treasury.

This program to address legacy loans and securities is part of an overall strategy to resolve the crisis as quickly and effectively as possible at least cost to the taxpayer. The Public-Private Investment Program is better for the taxpayer than having the government alone directly purchase the assets from banks that are still operating and assume a larger share of the losses. Our approach shares risk with the private sector, efficiently leverages taxpayer dollars, and deploys private-sector competition to determine market prices for currently illiquid assets. Simply hoping for banks to work these assets off over time risks prolonging the crisis in a repeat of the Japanese experience.

Moving forward, we as a nation must work together to strike the right balance between our need to promote the public trust and using taxpayer money prudently to strengthen the financial system, while also ensuring the trust of those market participants who we need to do their part to get credit flowing to working families and businesses -- large and small -- across this nation.

This requires those in the private sector to remember that government assistance is a privilege, not a right. When financial institutions come to us for direct financial assistance, our government has a responsibility to ensure these funds are deployed to expand the flow of credit to the economy, not to enrich executives or shareholders. These provisions need to be designed and applied in a way that does not deter the participation by the private sector in generally available programs to stabilize the housing markets, jump-start the credit markets, and rid banks of legacy assets.

We cannot solve this crisis without making it possible for investors to take risks. While this crisis was caused by banks taking too much risk, the danger now is that they will take too little. In working with Congress to put in place strong conditions to prevent misuse of taxpayer assistance, we need to be very careful not to discourage those investments the economy needs to recover from recession. The rule of law gives responsible entrepreneurs and investors the confidence to invest and create jobs in our nation. Our nation's commitment to pursue economic policies that promote confidence and stability dates back to the very first secretary of the Treasury, Alexander Hamilton, who first made it clear that when our government gives its word we mean it.

For all the challenges we face, we still have a diverse and resilient financial system. The process of repair will take time, and progress will be uneven, with periods of stress and fragility. But these policies will work. We have already seen that where our government has provided support and financing, credit is more available at lower costs.

But as we fight the current crisis, we must also start the process of ensuring a crisis like this never happens again. As President Obama has said, we can no longer sustain 21st century markets with 20th century regulations. Our nation deserves better choices than, on one hand, accepting the catastrophic damage caused by a failure like Lehman Brothers, or on the other hand being forced to pour billions of taxpayer dollars into an institution like AIG to protect the economy against that scale of damage. The lack of an appropriate and modern regulatory regime and resolution authority helped cause this crisis, and it will continue to constrain our capacity to address future crises until we put in place fundamental reforms.

Our goal must be a stronger system that can provide the credit necessary for recovery, and that also ensures that we never find ourselves in this type of financial crisis again. We are moving quickly to achieve those goals, and we will keep at it until we have done so.

Mr. Geithner is the U.S. Treasury secretary.