Tuesday, March 17, 2009

WSJ Editorial Page: The Real AIG Outrage

The Real AIG Outrage. WSJ Editorial
WSJ, Mar 17, 2009

President Obama joined yesterday in the clamor of outrage at AIG for paying some $165 million in contractually obligated employee bonuses. He and the rest of the political class thus neatly deflected attention from the larger outrage, which is the five-month Beltway cover-up over who benefited most from the AIG bailout.

Taxpayers have already put up $173 billion, or more than a thousand times the amount of those bonuses, to fund the government's AIG "rescue." This federal takeover, never approved by AIG shareholders, uses the firm as a conduit to bail out other institutions. After months of government stonewalling, on Sunday night AIG officially acknowledged where most of the taxpayer funds have been going.

Since September 16, AIG has sent $120 billion in cash, collateral and other payouts to banks, municipal governments and other derivative counterparties around the world. This includes at least $20 billion to European banks. The list also includes American charity cases like Goldman Sachs, which received at least $13 billion. This comes after months of claims by Goldman that all of its AIG bets were adequately hedged and that it needed no "bailout." Why take $13 billion then? This needless cover-up is one reason Americans are getting angrier as they wonder if Washington is lying to them about these bailouts.

* * *

Given that the government has never defined "systemic risk," we're also starting to wonder exactly which system American taxpayers are paying to protect. It's not capitalism, in which risk-takers suffer the consequences of bad decisions. And in some cases it's not even American. The U.S. government is now in the business of distributing foreign aid to offshore financiers, laundered through a once-great American company.

The politicians also prefer to talk about AIG's latest bonus payments because they deflect attention from Washington's failure to supervise AIG. The Beltway crowd has been selling the story that AIG failed because it operated in a shadowy unregulated world and cleverly exploited gaps among Washington overseers. Said President Obama yesterday, "This is a corporation that finds itself in financial distress due to recklessness and greed." That's true, but Washington doesn't want you to know that various arms of government approved, enabled and encouraged AIG's disastrous bet on the U.S. housing market.

Scott Polakoff, acting director of the Office of Thrift Supervision, told the Senate Banking Committee this month that, contrary to media myth, AIG's infamous Financial Products unit did not slip through the regulatory cracks. Mr. Polakoff said that the whole of AIG, including this unit, was regulated by his agency and by a "college" of global bureaucrats.

But what about that supposedly rogue AIG operation in London? Wasn't that outside the reach of federal regulators? Mr. Polakoff called it "a false statement" to say that his agency couldn't regulate the London office.

And his agency wasn't the only federal regulator. AIG's Financial Products unit has been overseen for years by an SEC-approved monitor. And AIG didn't just make disastrous bets on housing using those infamous credit default swaps. AIG made the same stupid bets on housing using money in its securities lending program, which was heavily regulated at the state level. State, foreign and various U.S. federal regulators were all looking over AIG's shoulder and approving the bad housing bets. Americans always pay their mortgages, right? Mr. Polakoff said his agency "should have taken an entirely different approach" in regulating the contracts written by AIG's Financial Products unit.

That's for sure, especially after March of 2005. The housing trouble began -- as most of AIG's troubles did -- when the company's board buckled under pressure from then New York Attorney General Eliot Spitzer when it fired longtime CEO Hank Greenberg. Almost immediately, Fitch took away the company's triple-A credit rating, which allowed it to borrow at cheaper rates. AIG subsequently announced an earnings restatement. The restatement addressed alleged accounting sins that Mr. Spitzer trumpeted initially but later dropped from his civil complaint.

Other elements of the restatement were later reversed by AIG itself. But the damage had been done. The restatement triggered more credit ratings downgrades. Mr. Greenberg's successors seemed to understand that the game had changed, warning in a 2005 SEC filing that a lower credit rating meant the firm would likely have to post more collateral to trading counterparties. But rather than managing risks even more carefully, they went in the opposite direction. Tragically, they did what Mr. Greenberg's AIG never did -- bet big on housing.

Current AIG CEO Ed Liddy was picked by the government in 2008 and didn't create the mess, and he shouldn't be blamed for honoring the firm's lawful bonus contracts. However, it is on Mr. Liddy's watch that AIG has lately been conducting a campaign to stoke fears of "systemic risk." To mute Congressional objections to taxpayer cash infusions, AIG's lobbying materials suggest that taxpayers need to continue subsidizing the insurance giant to avoid economic ruin.

Among the more dubious claims is that AIG policyholders won't be able to purchase the coverage they need. The sweeteners AIG has been offering to retain customers tell a different story. Moreover, getting back to those infamous bonuses, AIG can argue that it needs to pay top dollar to survive in an ultra-competitive business, or it can argue that it offers services not otherwise available in the market, but not both.

* * *

The Washington crowd wants to focus on bonuses because it aims public anger on private actors, not the political class. But our politicians and regulators should direct some of their anger back on themselves -- for kicking off AIG's demise by ousting Mr. Greenberg, for failing to supervise its bets, and then for blowing a mountain of taxpayer cash on their AIG nationalization.

Whether or not these funds ever come back to the Treasury, regulators should now focus on getting AIG back into private hands as soon as possible. And if Treasury and the Fed want to continue bailing out foreign banks, let them make that case, honestly and directly, to American taxpayers.

US Energy Dept Report on Techniques to Ensure Safe, Effective Geologic Carbon Sequestration

DOE Releases Report on Techniques to Ensure Safe, Effective Geologic Carbon Sequestration
Comprehensive Report Describes New and Emerging Methods to Monitor, Verify, and Account for CO2 Stored in Geologic Formations
March 17, 2009

Washington, DC — The Office of Fossil Energy's National Energy Technology Laboratory (NETL) has created a comprehensive new document that examines existing and emerging techniques to monitor, verify, and account for carbon dioxide (CO2) stored in geologic formations. The report, titled Monitoring, Verification, and Accounting of CO2 Stored in Deep Geologic Formations, should prove to be an invaluable tool in reducing greenhouse gas emissions to the atmosphere through geologic sequestration.

The report was prepared by NETL with input from the seven Regional Carbon Sequestration Partnerships. Its main goals are to—
  • Provide an overview of monitoring, verification, and accounting (MVA) techniques that are currently in use or are being developed.
  • Summarize the Energy Department’s MVA research and development program.
  • Present information that can be used by regulatory organizations, project developers, and national and state policymakers to ensure the safety and efficacy of carbon storage projects.
  • Emissions of CO2 have increased from an insignificant level two centuries ago to more than 30 billion tons worldwide today. As a result, atmospheric levels of CO2 have risen from preindustrial levels of 280 parts per million (ppm) to more than 380 ppm today. If no effort is made to reduce CO2 emissions, yearly release from the United States could increase by one third from 2005 to 2030.
Carbon capture and storage will help reduce this growth by capturing CO2 before it is emitted into the atmosphere. Geologic sequestration—the storage of CO2 in deep geologic formations such as depleted oil and gas reservoirs, unmineable coal seams, and saline formations—has emerged as an important and viable option in a wide-ranging portfolio of technologies.

Reliable and cost-effective MVA techniques are critical to making geologic storage a safe, effective, and acceptable method for reducing greenhouse gas emissions. Additionally, MVA provides data that can be used to—
  • Verify national inventories of greenhouse gases.
  • Assess reductions of greenhouse gas emissions at geologic sequestration sites.
  • Evaluate potential regional, national, and international greenhouse gas reduction goals.
The Office of Fossil Energy supports a number of carbon capture and storage initiatives including a vigorous MVA research and development program.

Palestinian Security Forces Training Center Opens

Palestinian Security Forces Training Center Opens
US State Dept, Bureau of Public Affairs, Office of the Spokesman
Washington, DC, March 17, 2009

U.S. Assistant Secretary of State for International Narcotics and Law Enforcement Affairs (INL) David Johnson and Palestinian Authority Prime Minister Salam Fayyad formally opened the Presidential Guard Training Center in Jericho. The training center was built with $10.1 million of State Department assistance.

The center, completed by Palestinian contractors over the course of the past 16 months, has a training capacity of 700 officers and enlisted men, including accommodations and dining facilities, waste water treatment, parade grounds, classrooms, and an obstacle course. The construction was overseen by the United Nations Office for Project Services. The center is the first of several construction projects to be built with INL funds in support of Palestinian Authority security forces in the West Bank.

U.S. Assistant Secretary of State Johnson praised the work of the Presidential Guard and the Palestinian Authority in developing a well-trained, professional force to advance the rule of law, which is of fundamental importance to Palestinians.

Medvedev: Russia To Rearm Fleet, Army From 2011

Medvedev: Russia To Rearm Fleet, Army From 2011
Mar 17, 2009

MOSCOW (AFP)--President Dmitry Medvedev said Tuesday the North Atlantic Treaty Organization was still seeking to expand its physical presence near Russian borders and ordered a "large-scale" Russian rearmament from 2011.

"From 2011 a large-scale rearmament of the army and navy will begin," Medvedev was quoted by news agencies as saying at a meeting of military chiefs in Moscow.

He called for a renewal of Russia's nuclear weapons arsenal and said NATO was pursuing military expansion near Russia's borders.

"Analysis of the military-political situation in the world shows that a serious conflict potential remains in some regions," Medvedev said.

He listed local crises and international terrorism as persistent security threats and also stated: "Attempts to expand the military infrastructure of NATO near the borders of our country are continuing.

"The primary task is to increase the combat readiness of our forces, first of all our strategic nuclear forces. They must be able to fulfill all tasks necessary to ensure Russia's security," Medvedev said.

The comments came despite statements by the Russian leadership suggesting a thaw in relations with the U.S. following the end of the George W. Bush administration and the inauguration of President Barack Obama.

Some analysts have detected a softening of U.S. support for NATO enlargement to ex-Soviet countries on Russia's borders such as Georgia and Ukraine.

The Obama administration has said it is weighing what to do about a Bush-era project to build missile defense facilities in eastern Europe that has angered Moscow.

Russia, the world's largest country and one of a handful of nuclear-armed states, is attempting to slim down and improve its military, which currently numbers about 1 million personnel.

At Tuesday's meeting Defense Minister Anatoly Serdyukov said a host of non- core activity, from guest house management to weapons repair and food production, would be transferred from the Defense Ministry to a state-owned civilian company, Oboronservis.

China Gains Key Assets In Spate of Purchases

China Gains Key Assets In Spate of Purchases. By Ariana Eunjung Cha
Oil, Minerals Are Among Acquisitions Worldwide
Washington Post, Tuesday, March 17, 2009; Page A01

SHANGHAI -- Chinese companies have been on a shopping spree in the past month, snapping up tens of billions of dollars' worth of key assets in Iran, Brazil, Russia, Venezuela, Australia and France in a global fire sale set off by the financial crisis.

The deals have allowed China to lock up supplies of oil, minerals, metals and other strategic natural resources it needs to continue to fuel its growth. The sheer scope of the agreements marks a shift in global finance, roiling energy markets and feeding worries about the future availability and prices of those commodities in other countries that compete for them, including the United States.

Just a few months ago, many countries were greeting such overtures from China with suspicion. Today, as corporations and banks in other parts of the world find themselves reluctant or unable to give out money to distressed companies, cash-rich China has become a major force driving new lending and investment.

On Feb. 12, China's state-owned metals giant Chinalco signed a $19.5 billion deal with Australia's Rio Tinto that will eventually double its stake in the world's second-largest mining company.

In three other cases, China has used loans as a way of securing energy supplies. On Feb. 17 and 18, China National Petroleum signed separate agreements with Russia and Venezuela under which China would provide $25 billion and $4 billion in loans, respectively, in exchange for long-term commitments to supply oil. And on Feb. 19, the China Development Bank struck a similar deal with Petrobras, the Brazilian oil company, agreeing to a loan of $10 billion in exchange for oil.

On Saturday, Iran announced that it had signed a $3.2 billion agreement with a Chinese consortium to develop an area beneath the Persian Gulf seabed that is believed to hold about 8 percent of the world's reserves of natural gas.

Even as global financial flows have slowed sharply overall, China has dramatically stepped up its outbound investment. In 2008, its overseas mergers and acquisitions were worth $52.1 billion -- a record, according to the research firm Dealogic. In January and February of this year, Chinese companies invested $16.3 billion abroad, meaning that if the pace holds, the total for 2009 could be nearly double last year's.

Worldwide, the value of mergers and acquisitions transactions so far this year has dropped 35 percent to $384 billion. By comparison, the United States had $186.2 billion in outbound mergers and acquisitions in 2008 and Japan had $74.3 billion.

China's state-run media outlets are calling the acquisition spree an opportunity that comes once in a hundred years, and analysts are drawing parallels to 1980s Japan.

"That China started investing or acquiring some overseas mineral resources companies with relatively low prices during the global economic crisis is quite a normal practice. Japan did the same thing in its prime development period, too," said Xu Xiangchun, consulting director for Mysteel.com, a market research and analysis firm.

It's not just Chinese corporations that are taking advantage of the economic crisis to help others while helping themselves.

The Chinese government also has come to the rescue of ailing countries, such as Jamaica and Pakistan, that it wants as allies, extending generous loans. Even Chinese consumers are taking their money abroad. In a shopping trip last month organized by an online real estate brokerage, a group of 50 individual investors from China traveled to New York, Los Angeles and San Francisco to purchase homes at prices that have crashed since the subprime crisis.

"As soon as we launched the project, we had 100 people registered and ready to go," said Dai Jianzhong, chief executive of SouFun Holdings, which organized the trip. "Now the number has reached 400. Apparently, the American real estate market has a great appeal to Chinese buyers."

China's Commerce Ministry organized a similar shopping expedition -- but for Chinese companies to visit foreign companies -- the week of Feb. 25. Commerce Minister Chen Deming took with him about 90 executives, who signed contracts worth about $10 billion in Germany, $400,000 in Switzerland, $320 million in Spain and $2 billion in Britain. The deals were mostly for the purchase of goods, including olive oil, 3,000 Jaguars and 10,000 Land Rovers.

The Commerce Ministry said Monday that it intends to send more investment missions abroad this year. Although details are still being worked out, the itineraries will probably include the United States, Japan and Southeast Asia, the ministry said.

Foreign automakers may be next on China's acquisitions list.

On Feb. 23, Weichai Power, a diesel engine company, said it would spend about $3.8 million to acquire the products, technology and brand of France's Moteurs Baudouin, which designs and manufactures marine propulsive equipment such as engines and propellers.

That was a relatively small deal, but Chen Bin, director general of the National Development and Reform Commission's Department of Industry, hinted that larger acquisitions may be in the works. He noted on the sidelines of a news conference on the economy late last month that overseas car companies are facing cash difficulties at the same time their Chinese counterparts "need their technology, brands, talent and sales networks."

"It will be a very big challenge for Chinese companies to stabilize the operations of foreign automakers and to maintain growth," Chen acknowledged, according to the official People's Daily, but he added that if the companies decide to acquire such assets, "the government will support them."

The one country that appears conspicuously absent from China's corporate bargain-hunting spree is the United States.

Many Chinese investors are still stung by the memory of China National Offshore Oil's 2005 attempt to buy a stake in the U.S. energy company Unocal. The deal fell apart after U.S. lawmakers expressed concern about the national security implications of China controlling some of the country's oil resources.

Xiong Weiping, president of Chinalco, whose bid for a larger stake in Rio Tinto is China's biggest outbound investment to date, has taken measures to address concerns as scrutiny of that deal has increased. The deal will be put to a shareholder vote in May or June and must also be approved by Australia's Foreign Investment Review Board.

At a news briefing in Sydney on March 2, Xiong assured the country that Chinalco is not seeking a majority share of the mining giant and that its management and corporate strategy would not change. Xiong emphasized that "the transaction will in no way lead to any control of the natural resources of Australia."

Zha Daojiong, an energy researcher at Peking University, said Chinese companies feel they may be discriminated against in the United States because of the mistaken perception that they are all state-owned or state-directed.

"Foreigners question these companies' intentions and tend to link their moves with government instructions," Zha said, "but I should say it is really hard to tell whether this is true nor not."

Researchers Wang Juan and Liu Liu in Beijing contributed to this report.

Congress Is the Real Systemic Risk

Congress Is the Real Systemic Risk. By Peter J Wallison
WSJ, Mar 17, 2009

After their experience with Fannie Mae and Freddie Mac, you'd think that Congress would no longer be interested in creating companies seen by the market as backed by the government. Yet that is exactly what the relevant congressional committees -- the Senate Banking Committee and the House Financial Services Committee -- are now considering.

In the wake of the financial crisis, the idea rapidly gaining strength in Washington is to create a systemic risk regulator. The principal sponsor of the plan is Barney Frank, the chair of the House Financial Services Committee. A recent report by the Group of Thirty (a private sector organization of financial regulation specialists), written by a subcommittee headed by Paul Volcker, also endorsed the idea, as has the U.S. Chamber of Commerce and the Securities Industry Financial Markets Association.

If implemented, this would give the government the authority to designate and supervise "systemically significant" companies. Presumably, systemically significant companies would be those that are so large, or involved in financial activities of such importance, that their failure would create systemic risk.

There are several serious problems with this plan, beginning with the fact that no one can define a systemic risk or its causes. The Congressional Oversight Panel, which was established to advise Congress on the use of the TARP funds, concluded -- with two Republicans dissenting -- that the current crisis is an example of a systemic risk evolving into a true systemic event. After all, virtually all the world's major financial institutions are seriously weakened, and many have either failed or been rescued. If this is not an example of a systemic risk, what is?

The current financial crisis is certainly systemic. But what caused it? The failure of Lehman Brothers occurred long after the market for mortgage-backed securities (MBS) had shut down, and six months after Bear Stearns had to be rescued because of its losses. In other words, the crisis did not arise from the failure of a particular systemically significant institution. The world's major financial institutions had already been weakened by the realization that losses on trillions of dollars in MBS were going to be much greater than anyone had imagined, and before the major asset write-downs had begun. So if this was a systemic event, it was not caused by the failure of one or more major institutions. In fact, it was the other way around: The weakness or failure of financial institutions was the result of an external event (losses on trillions of dollars of subprime mortgages embedded in MBS).

If this is true, what is the value of regulating systemically significant financial institutions? Financial failures, it seems, can be the result, rather than the cause, of systemic events like the one we are now experiencing. Even if we assume that regulating systemically significant companies will somehow prevent them from failing -- a doubtful proposition, given that the heavily regulated banks have been the most severely affected by the current crisis -- we will not have prevented the collapse of a major oil-supplying country, an earthquake or a pandemic from causing a similar problem in the future. All we will have done is given some government agency more power and imposed more costs on financial institutions and consumers.

But increased government power and higher costs are not the worst elements of the proposal to designate and supervise systemically significant companies. The worst result is that we will create an unlimited number of financial institutions that, like Fannie Mae and Freddie Mac, will be seen in the financial markets as backed by the government. This will be especially true if, as Mr. Frank has recommended, the Federal Reserve is given supervisory authority over these institutions. The Fed already has the power -- without a vote of Congress -- to provide financing under "exigent circumstances" to any company, and will no doubt be able to do so for the institutions it supervises.

A company that is designated as systemically significant will inevitably come to be viewed as having government backing. After all, the designation occurs because some government agency believes that the failure of a particular institution will have a highly adverse effect on the rest of the financial system. Accordingly, designation as a systemically significant company will in effect be a government declaration that that company is too big to fail. The market will understand -- as it did with Fannie and Freddie -- that loans to such a company will involve less risk than loans to its competitors. Counterparties and customers will believe that transactions with the company will generally be more secure than transactions with other firms that aren't similarly protected from failure.

As a consequence, the effect on competition will be profound. Financial institutions that are not large enough to be designated as systemically significant will gradually lose out in the marketplace to the larger companies that are perceived to have government backing, just as Fannie and Freddie were able to drive banks and others from the secondary market for prime middle-class mortgages. A small group of government-backed financial institutions will thus come to dominate all sectors of finance in the U.S. And when that happens they shall be called by a special name: winners.

Mr. Wallison is a fellow at the American Enterprise Institute.

Taiwan's New Defense Report Could Fray Ties With China

Taiwan's New Defense Report Could Fray Ties With China. By Ting-I Tsai
WSJ, Mar 17, 2009, page A9

TAIPEI -- Taiwan issued a defense report that calls for the island to press for modern military equipment from the U.S. -- a move that could complicate the warming relations both Taiwan and the U.S. have been cultivating with China.

The quadrennial military review, issued Monday, runs counter to softer, more China-friendly draft versions that circulated in Taiwan over the past few months. Some officials said the harder line is a response to criticism in Taipei and Washington that the current administration in Taiwan had been making too many concessions to China without having received much in return.

"The report is tougher than I expected," said Alexander Huang, a strategic studies professor at Tamkang University in Taipei, who was involved in earlier versions of the paper.

Taiwan and China have been ruled separately for more than 60 years, since China's civil war, and have become close trading partners. Under President Ma Ying-jeou, who was elected a year ago, the two sides have moved closer, setting up direct transport flights and shipping links and discussing a possible free-trade deal. On Monday, relations across the Taiwan Strait marked a new milestone when the Ocean Mystery, the first luxury cruise ship to sail directly from China, arrived in Taiwan with more than 1,000 Chinese tourists.

Perhaps the most notable sign of improving ties was a government defense paper endorsed by Mr. Ma that called for democratically governed Taiwan, a hub of the global high-tech industry, to give up its longtime strategy of preventing a Chinese attack by maintaining air and sea superiority. Instead, Taiwan would concentrate its defenses against a ground assault, according to the paper.

Supporters said the proposed strategy would be less costly for Taiwan and the weapons easier to obtain. In deference to China, few countries are willing to sell Taiwan weapons. Opponents said it would be nearly suicidal for the island of 23 million to fight a land war with its giant neighbor.
"Critics from the military and academia forced President Ma to emphasize that the navy and air force are both important," said a senior official from the Ministry of National Defense.

A presidential spokesman said: "President Ma fully respects professionals on this issue."
Under Monday's plan, Taiwan will try again to buy 66 F-16 C/D fighters from the U.S. These are more advanced versions of the F-16 that Taiwan has and would allow it to more effectively counter China's growing fleet of Russian-built warplanes. Last year, the Bush administration agreed to a US$6.43 billion arms package but excluded the fighters. China reacted by suspending military-to-military talks with the U.S., though they since have resumed.

Taiwan will formally request the fighters again, officials in Tapei said Monday, and in the long term try to buy "stealth" technology fighters. Taiwan also wants to buy submarines -- another item vetoed by the Bush administration. In an effort to balance this with more China-friendly policies, the paper calls for a "confidence-building mechanism" with China. Some officials have said this could involve officer exchanges.

Although the Obama administration is eager to improve relations with Beijing, some officials in Washington have implied that weapons sales are in the U.S.'s national interest. In testimony to Congress in February, National Intelligence Director Dennis Blair said the U.S. was the only outside power that could help Taiwan: "That means we're going to have to help them some more in order to maintain a balance."

Some U.S.-based analysts say sales would help maintain the balance of power in the region. That would reduce the need for American soldiers to defend Taiwan in case China tries to invade.

"If Taiwan is unable to deter attacks from China, it increases the probability of the U.S. having to confront China militarily should China make a mistake," said Rick Fisher, a senior fellow at the International Assessment and Strategy Center in Washington.

IER president on carbon taxes

A Taxing Debate, by Thomas J. Pyle
Planet Gore, Monday, March 16, 2009

Economists rarely agree on the past, and never on the future. But in the present debate over carbon taxes, a strange consensus is starting to form around the idea that a national tax on carbon is better than installing an economy-wide cap on it.

Maybe so. But being "better" than cap-and-trade doesn't make a carbon tax a worthwhile public investment. Black bears are less dangerous than grizzly bears; neither should be let loose in the subway. Just as we shouldn't let the perfect be the enemy of the good, we shouldn't let the horrendous serve as a justification for the horrible.

Well-intentioned proponents of the carbon tax call it "equitable and fair." It's "straightforward and upfront" — even its detractors admit that. And the coup de grĂ¢ce: "It's budget neutral."
Here's how it's supposed to work: The federal government conjures a carbon-tax rate it believes will incent the American public to use, generate, and emit less of the stuff. To offset that new levy, the government reduces by a corresponding amount its tax-related take on things we desperately need right now: jobs, investment, and income. A revenue-neutral carbon tax, its advocates say, will create new jobs, generate new wealth, and save the planet, to boot.

The problem is, being revenue neutral from the government's point-of-view doesn't make a carbon tax revenue neutral for American families. Even if the government reduces income taxes to offset the imposition of a carbon tax, that tax will immediately increase the cost of nearly everything that's produced, consumed, manufactured, or transported — including and especially food and fuel.

And what of the nearly 40 percent of the public that doesn't pay taxes on its income? How are they made whole under a carbon tax system that's "offset" by tax reductions elsewhere? If government were to reduce payroll taxes rather than income taxes to achieve budget neutrality, how would we cover the ballooning obligations of our entitlement programs for retirees? A plan that would rob Peter to pay Paul is bad enough; robbing Mildred to subsidize Moonbat represents the height of irresponsibility.

Still, a growing number of economists — left, right, and middle — agree that a straight carbon tax makes more sense than cap and trade. Their fundamental contention is that it's more transparent, more understandable, and subject to less political manipulation than a purposefully opaque, intentionally unwieldy cap-and-trade regime. All good points. And irrelevant ones.
Why? Because the carbon tax is being sold as a means to reduce the concentration of atmospheric carbon dioxide, and thus to slow the pace and intensity of our world's changing climate. But America's share of the world's total CO2 emissions is getting smaller and smaller by the year, as developing nations' share continues to grow. The trend lines are so pronounced that if the U.S. were to halt its use of hydrocarbons today, the increase in carbon emissions from the rest of the world would replace our emissions in fewer than eight years. If we adopted a more modest approach - ban all cars, for instance - the rest of the world would replace our transportation emissions in less than two years.

And since Congress is powerless to levy a carbon tax on other countries, a unilateral, preemptive strike on carbon would only erode our ability to compete economically, without doing anything meaningful thing to change the composition of our air or the quality of our environment.
China and India will be happy to meet us half-way on at least one crucial consideration: they're more than willing to take the jobs America hemorrhages if we go it alone on carbon taxation. Government accountants can call the plan "budget neutral," but the labor department's monthly unemployment reports will have the final say on whether it is "job neutral."

Are the American people willing — or able — to set aside trillions of dollars to support a plan that cannot work without global participation? The very least we should expect from our elected leaders is a grown-up discussion about what it will all cost, what we'll get in return, and whether or not we can afford it right now. Or ever.

Those who support cap-and-trade have refused to engage in that discussion from the start. Carbon-tax supporters have been more up front. But that doesn't mean they're right.

— Thomas J. Pyle is president of the Institute for Energy Research

Sheikh Hasina’s Regional Anti-Terror Task Force Unlikely to Takeoff

Sheikh Hasina’s Regional Anti-Terror Task Force Unlikely to Takeoff. By Anand Kumar
Institute for Defence Studies and Analyses, March 16, 2009

Counter-terrorism and elimination of religious extremism were important parts of Sheikh Hasina’s election manifesto. But the concern about terrorism is not limited to top Awami League leaders and is also felt by a major section of the Bangladesh public. Many supported the Awami League in the hope of reversing the rising trend of extremism and terrorism in the country. In her very first press conference after winning the elections, Sheikh Hasina stated that she will not allow the country's soil to be used by terror groups and proposed a joint task force in the subcontinent to tackle terror. It is felt that this task force will help track down militants and bring them to justice as well as strengthen cooperation between the police forces and judiciaries of South Asian nations. Hasina also sought British support for such a task force during a meeting with the British High Commissioner to Dhaka. Terrorism was also a prominent topic that was discussed at the meeting with the American envoy James Moriarty and Bangladesh’s Foreign Minister Dipu Moni.

However, Hasina’s proposal to establish a South Asian regional anti-terror task force may not fructify especially given domestic opposition within Bangladesh. The Awami League’s main political rival, Bangladesh Nationalist Party (BNP), has expressed its opposition to the proposal. The party feels that other nations, particularly Pakistan, are unlikely to be enthusiastic about it. When Sheikh Hasina discussed the proposal with Indian foreign minister Pranab Mukherjee, the BNP launched a blistering attack against. BNP Secretary General Khandaker Delwar Hossain warned the government that “any bilateral mechanism” with India in the name of a South Asian regional anti-terror task force could turn Bangladesh into a “Gaza.” It could give rise to “complications and possibilities of armed activities of other countries spilling over to Bangladesh.” Hossain also said, “We firmly believe that our people, conventional laws, law enforcing agencies and the armed forces are capable enough to keep the country free from militancy and strife. Signing any deal with other countries outside international conventions to contain militancy is unnecessary and could prove suicidal.”

Jamaat-e-Islami Bangladesh has also warned the Hasina government that it will only invite trouble by forming a regional anti-terror task force. Party chief Matiur Rahman Nizami said, "Our police, BDR, RAB and army are enough to prevent terrorism in the country. If foreign troops are called inside the country it will amount to inviting trouble." Nizami criticized the government for its impatience to sign "anti-people" agreements like the regional anti-terrorism task, transit facilities, the Trade and Investment Framework Agreement (TIFA) with the United States, etc. Nizami also alleged that "….such a hasty move proves that they were put to power through a conspiracy only for signing such anti-people agreements."

In addition to domestic resistance, the regional task force proposal also has to contend with the realities of divergent interests among South Asian countries. There is little doubt that to combat terrorism South Asia needs a joint effort. It was realized long ago that regional cooperation was necessary to address terrorism, and it was with this objective that South Asian countries had adopted the SAARC Convention on Terrorism in 1987. The convention was reinforced by the adoption of an Additional Protocol on terrorism at the 12th Summit whose modalities were finalised in the Dhaka Summit. The SAARC established a Terrorist Offences Monitoring Desk (STOMD) in Colombo to collate, analyse and disseminate information about terrorist incidents, tactics, strategies and methods. At the 11th Summit in Kathmandu in January 2002, leaders of SAARC had taken a pledge to make collective efforts to stamp out terrorism.

But for regional efforts to bear fruit, all member states have to show equal commitment. In the past this has not been the case, a state of affairs that has not yet changed. If South Asia really wants to uproot terror SAARC should get down to implementing the declarations it has agreed upon at various summits. Hasina is also probably aware of the problem among SAARC countries, hence her call for good relations between Pakistan and India. But it is also known that relations between India and Pakistan are not going to improve in a hurry. Thus, it is all the more incomprehensible as to why the Hasina government wants to make counter-terrorism cooperation hostage to the creation of a regional mechanism.

Dr. Anand Kumar is Associate Fellow at the Institute for Defence Studies and Analyses, New Delhi.

Lawrence Summers on the Economic Crisis and Recovery

Lawrence Summers on the Economic Crisis and Recovery
Brookings, Mar 17, 2009

On March 13, the Brookings Institution hosted Lawrence Summers, Director of the White House National Economic Council, for a discussion of the Obama administration’s economic program and the prospects for the American economy.

Dr. Summers was appointed Director of the National Economic Council by President Obama on November 24, 2008. Before joining the White House in January, Dr. Summers was the Charles W. Eliot University Professor at Harvard University. He served as the 27th president of Harvard University from July 2001 until June 2006. From 1999 to 2001, he served as the 71st United States Secretary of the Treasury following his earlier service as Deputy and Under Secretary of the Treasury and as Chief Economist of the World Bank. Summers has taught economics at Harvard and MIT. Lawrence Summers received his B.S. from MIT and his Ph.D. in economics from Harvard. He served as a Brookings trustee from November 2002 – January 2009.

Brookings Senior Fellow Martin Neil Baily provided introductory remarks. After the program, Dr. Summers took audience questions.


LARRY SUMMERS: Our single most important priority is bringing about economic recovery and ensuring that the next economic expansion, unlike its recent predecessors, is fundamentally sound and not driven by financial excess. Without robust and sustained economic expansion, we will not achieve any other important national goal. We will not be able to project strength globally or reduce poverty locally. We will not expand access to higher education or make health care more affordable. And we will not be able to create opportunities for new small businesses to thrive, or most importantly, to raise incomes for middle-class families.

So today I come here to explain and discuss the rationale behind the President's Recovery Program and our strategy for long-term growth. Our problems were not made in a day or a month or a year, and they will not be solved quickly. But there is one ineluctable lesson of the history of financial crises: they all end. I am confident that with strong and sound policies the President has put forward and the passage of time, we will restore economic growth, regain financial stability and find opportunity in this moment of crisis to assure that our future prosperity rests on a sound and sustainable foundation.

View Full Transcript »