Sunday, December 13, 2009

The 'Cost Control' Bill of Goods - How Peter Orszag and the White House sold a health-care illusion

The 'Cost Control' Bill of Goods. WSJ Editorial
How Peter Orszag and the White House sold a health-care illusion.

ObamaCare's core promise—better quality care for everyone at lower costs—is being exposed as an illusion as it degenerates into the raw exercise of political power. Naturally, the White House and its media booster club are working furiously to prop up this fiasco, especially on cost control.

As Obama budget director Peter Orszag put it at a revealing media breakfast earlier this month, the Senate bill does everything the experts recommend to "get at the underlying drivers of health-care costs." While he admitted that "we don't know enough" to produce results right away, the key is to encourage "continuous improvement" through pilot programs and demonstration projects. Cost containment will actually take "years to decades," Mr. Orszag conceded.

The torch was then passed to Ron Brownstein of the Atlantic Monthly, David Leonhardt of the New York Times and editorial writers for the New England Journal of Medicine, among others. Last week the New Yorker ran a 5,000-word apologia from Atul Gawande, who likewise owned up to the fact that there is "no master plan for dealing with the problem of soaring medical costs," only "a battery of small scale experiments." Keep in mind, this is an argument in favor of ObamaCare.

They might have piped up earlier: What they're finally admitting is that all the grandiose talk about "bending the curve" used for months to sell ObamaCare really comes down to their hope that bureaucratic improvisation will make a difference over the long term. Yet the liabilities of the greatest social spending program in American history will be added to the budget almost immediately, and what happens if Mr. Orszag's technocratic revolution doesn't work as promised? Or rather, when it doesn't?

Forgotten in ObamaCare's march-to-the-sea campaign is that during the transition and early on, the White House was divided on whether to pursue health reform at all. Opponents included Larry Summers, worried about the economy and deficits, and David Axelrod, worried about the politics. Another faction led by Tom Daschle preached from the conventional social-equity church of liberalism.

Mr. Orszag proposed another option, citing academic research observing that as much as 30% of health spending is "waste" that doesn't affect outcomes. He argued the country could save $700 billion a year without harming quality—more than enough to pay for universal coverage.

Thus cost control migrated from Orszag theory to free political lunch. Mr. Gawande wrote an influential New Yorker essay on the topic in June, and the theme shaped both the case for a new entitlement and especially the appeal to potential opponents in business.

But then Congressional Budget Office director Douglas Elmendorf testified in July that "the curve is being raised," given that ObamaCare lacks "the sort of fundamental changes" necessary to tamp down costs. Meanwhile, it became clear that Mr. Orszag's favored research was always more nuanced and qualified than his pose of papal infallibility. One of his main gurus, Jonathan Skinner, mused recently that "the key lesson" from a new study challenging some of his findings "is how little we know about the science of health-care delivery."

Well, sure. A field as dynamic and innovative as U.S. medicine, in which costs are largely driven by new technologies and better ways of caring for patients, is rife with complexities and uncertainties. But no one bothered to strike that note of caution when Washington was hopped up on a cost-control gambit that was too painless to be true.

The new cost-control apologists concede that there isn't any actual plan for controlling costs: Throw enough speculative policies against the wall, they say, and some breakthrough will stick. Yet Mr. Orszag's no-less-confident predecessors spent decades trying to pull down Medicare spending with little to no success. Technocracy rarely if ever works as intended. Mr. Gawande points to the case study of U.S. farm policy, and if politically sacrosanct agriculture subsidies and rural price-supports are the best to hope for, then what's the worst?

More relevant examples include Medicare's "relative value" payment scale, which was designed in 1985 by the Harvard economist William Hsiao to encourage more primary care. That's this year's rallying cry too. "Diagnosis-related groups" were introduced into Medicare in 1983 to alleviate hospital cost growth, and what a monumental success that turned out to be. With only brief periods of relatively slower growth, nominal Medicare spending has risen on average at an annual rate of 9.6% since 1980. Over the same period total Medicare spending has grown 13-fold, climbing from 1.2% of the economy to 3.2% today.

Congress lacks the stomach for serious cost control in any case. One policy Mr. Orszag favors—Medicare penalties for hospitals that re-admit certain patients—is limited to only three conditions in the Senate bill, and the penalties are trivial.

Another—a putatively independent commission that is supposed to enforce cost cutting—is barred from going after costs incurred by doctors and hospitals, which leaves out more than half of Medicare spending. Earlier this year Mr. Orszag got into a heated debate with Henry Waxman over such a commission at a dinner party hosted by Connecticut Rep. Rosa DeLauro, precisely because the House baron enjoys the political power that flows from controlling health spending.

Even if Mr. Orszag's Princeton and Yale Ph.D.s really do cook up some hope-and-a-prayer savings plan, it will invariably offend one constituency or another and Congress will block it. Thereupon the political class will do what it always does when costs run over: Tighten price controls across the board, before moving on to denying patient access to costly treatments that will be defined as "wasteful." That is, ration care.

"Basically everything that has been put forward in health policy discussions for a decade is in this bill," Mr. Orszag said on a conference call shortly before Thanksgiving. He then asked critics pointedly: "What specifically else would you do?"

Hmmm. One liberal sage noted in a 2007 paper that "four decades of empirical research" have shown that insulating people through third-party insurance coverage "from the full cost of health care has been responsible for anywhere from 10% to 50% of the large increase in health expenditures." Ultimately, he concluded, increasing cost-sharing would give individuals a direct stake in more prudent purchasing, as opposed to today's invisible health dollars that vanish as more expensive premiums, foregone wages and higher taxes.

Those are the words of Jason Furman, now the White House deputy economic director who seems to have been put into witness protection. Every serious health economist in the country recommends reforming the tax exclusion for employer-sponsored insurance, perhaps by converting it to a deduction or credit. Cost control will never stick unless it is extricated from politics and transferred to individuals to make their own trade-offs.

Such reforms were ruled out by union opposition, so the Senate gestures at them with a 40% excise tax on high-cost insurance plans, on the theory that two wrongs will make a right. But this untargeted tax will simply raise the cost of coverage for all workers in a given pool—it's too clever by 40%—while doing nothing to stem the distortions from first-dollar, third-party insurance.

No doubt there are efficiencies to be had in health care, and maybe Mr. Orszag has even identified some of them. But all of his bright ideas could be taken for a whirl without adding trillions of new liabilities to the federal balance sheet. And the bad faith of the White House and its acolytes is breathtaking.

The White House hawked a permanent entitlement expansion on flimsy and speculative theories that its own partisans now admit—albeit when it is nearly too late—aren't more substantive than the triumph of hope over experience, while simultaneously writing off the one policy that has been effective in the real world. The cost control mantra of ObamaCare was always a political bill of goods, and its result will be the opposit

Saturday, December 12, 2009

Watch what they spend, not what they say

More, More, More. WSJ Editorial
Watch what they spend, not what they say.
The Wall Street Journal, Dec 12, 2009, page A18

When it comes to spending, the Democrats who run Washington can't decide on their message. On the one hand, as President Obama said this week, they claim we have to "spend our way out of this recession." On the other, they keep telling us the deficit is too large and isn't "sustainable." In this tug of political spin, watch what they spend, not what they say.

And that means watching this weekend's expected Senate vote on a 1,088-page $445 billion "omnibus" package of spending bills to fund the government for fiscal 2010. The House passed a similar elephant earlier this week, allowing federal agency budgets to increase spending by some $48 billion, or about 12% from 2009. That increase—when inflation is negligible—is in addition to the $311 billion in stimulus already authorized or out the door for these programs. Adding this new stash means that federal agencies will have received a nearly 70% increase in the last two years.

Oh, and that's not all. The President and Congress also want to spend as much as $200 billion more from the Troubled Asset Relief Program on still another stimulus, though this time we are supposed to call it a "jobs" program, because stimulus now has a dirty political name.

This $445 billion bill for 2010 covers most of the domestic agencies of government, but not defense. In the first two months of this fiscal year, which began October 1, Uncle Sam is already $292 billion in the red. That's more than in the first two months of last year and at a time when the economy is growing again, so perhaps the President means we need to keep spending our way out of recovery. After the spending bill, Congress will then turn to passing a $1.8 trillion increase in the national debt ceiling, which should get them past the November elections.

Not that the press corps cares anymore, but the omnibus also continues the earmark explosion that Speaker Nancy Pelosi vowed to end when she was trying to oust Republicans in 2006. The Heritage Foundation counts 5,224 earmarks, bringing the total for the year to about 10,000, or about 23 for every Congressional district. There is money for bike paths, skate board parks, museums, water-taxis to resort towns, and other absolute necessities.

Senator Kent Conrad, the ranking Democrat on the Budget Committee, is a walking example of the split Democratic spending personality. He frets that U.S. debt will soon be 114% of GDP, a level he says is "absolutely unsustainable" and a "threat to the economic security of America." Yet he keeps voting for every spending bill and will vote for the multitrillion health bill too.

Even harder to figure is Mr. Obama, who is likely to sign this budget behemoth even as he keeps telling us it's time to "make the hard choices necessary to get our country on a more stable fiscal footing in the long run." Word is that his 2011 budget proposal will propose a spending freeze of some kind, which is another election-year pivot.

After so much double talk, we've concluded this is all part of a conscious political strategy. Spend so much and run up the deficit to unprecedented levels, then turn around and claim that there's a fiscal crisis that can only be solved with higher taxes. They spend, you pay.

Sarbox Routed in House - A rare victory for small business

Sarbox Routed in House. WSJ Editorial
A rare victory for small business.
The Wall Street Journal, Dec 12, 2009, page A18

On Wednesday we told you about two guys from Jersey, Republican Scott Garrett and Democrat John Adler, and their looming showdown with House Financial Services Chairman Barney Frank (D., Mass.). Yesterday, the Jersey boys prevailed, as the House voted 271-153 to exempt the smallest public companies from the heaviest Sarbanes-Oxley auditing regulations.

More than 100 Democrats joined with Republicans in voting down an attempt by Mr. Frank and Paul Kanjorski (D., Pa.) to kill the Garrett-Adler amendment, which saves thousands of companies from the infamous Section 404(b) audits of "internal controls."

Companies with publicly traded shares amounting to less than $75 million already undergo audits and already comply with most of Sarbanes-Oxley. Yet the Securities and Exchange Commission, despite its own study showing that smaller companies suffer a disproportionate compliance burden under Sarbox, has announced that next year these small-cap companies will have to comply with the full regulatory burden applied to giant multinationals.

In the midst of a political panic after accounting scandals at Enron and WorldCom, Congress passed Sarbanes-Oxley in 2002. Sold as a way to ensure the quality of corporate financial reporting, the law wasn't of much use to investors in Citigroup, Merrill Lynch, Bear Stearns, Lehman Brothers, AIG . . . but it did succeed in generating unexpectedly large compliance costs, particularly at smaller technology companies.

With yesterday's vote, Sarbox appears to have lost its last significant constituency, if one does not count the regulators, auditors and consultants who directly profit from it. And even in this last category there are second thoughts. One reader who installs Sarbox-compliant IT systems for retailers tells us that these expensive overhauls reduce productivity and raise the cost per transaction with no discernible benefit.

The only cloud to yesterday's silver lining is that Sarbox relief is still trapped inside Mr. Frank's larger bill to create a permanent bailout fund for financial regulators. Thank goodness the Frank bill has no chance of passing the Senate, but now a bipartisan effort is needed to free the legislative hostage inside. The 271 House Members who voted against senseless bureaucracy yesterday can help do so by signing a discharge petition to bring the Garrett-Adler amendment to the floor as a stand-alone bill.

At a minimum, now that the House has clearly expressed its will, SEC Chairman Mary Schapiro should extend the small-company exemption beyond next summer, and consider relief for larger firms. If President Obama is looking for a way to create jobs without spending a taxpayer dime, Sarbox relief is made to order.

Fruits of Engagement in Sudan - Khartoum's hard men and Obama's diplomacy

Fruits of Engagement in Sudan. WSJ Editorial
Khartoum's hard men and Obama's diplomacy.
The Wall Street Journal, Dec 12, 2009, page A18

In his Oslo address Thursday, President Obama mulled the trade-offs in dealing with repressive regimes. "There's no simple formula here," he said. "But we must try as best we can to balance isolation and engagement, pressure and incentives, so that human rights and dignity are advanced over time."

From Nobel theory, we move to practice in Sudan. As a candidate, Mr. Obama stood with the human rights champions of Darfur and pledged tougher sanctions and a possible no-fly zone if a Sudanese regime infamous for genocide didn't shape up. His tone has changed in office.

Unveiled in October, the Administration's Sudan policy emphasized carrots for the regime to ease up in Darfur and implement a peace deal in southern Sudan; any sticks were relegated to a secret annex. The President's special envoy to Sudan, retired Major General Scott Gration, was reluctant even to allude to tougher sanctions. He said that "cookies" and "gold stars" are preferable to threats and that Darfur was experiencing only "remnants of genocide."

President Omar al-Bashir, whose Islamist National Congress Party took power in a 1989 coup, got the message and decided to test the limits of this new indulgence. Almost immediately the regime hardened its stance on implementing the peace accord. Brokered by the Bush Administration in 2005, the deal calls for political reforms, including free parliamentary elections now scheduled for April, and a referendum on independence for the south in two years. Long before the ethnic cleansing in Darfur turned into a Hollywood cause célèbre, a two-decade war between the Muslim north and the Christian and oil-rich south took two million lives.

On Monday, police in the capital Khartoum beat and arrested opposition leaders who were pressing parliament to adopt the necessary laws to hold the April elections. Time is running out to pass them. The Bashir regime now refuses to overhaul the national security and criminal laws as also stipulated in the 2005 deal. Its recalcitrance means the election and referendum, assuming both come off, would be tainted. This could in turn end up restarting the civil war.

At the same time, the preference for diplomacy over pressure has encouraged the hard men in Khartoum to stoke the flames in Darfur, ignoring an arms embargo and challenging the U.N.-African Union peacekeeping force there.

In the man-bites-dog story of the year, the U.N. last week took the Obama Administration to task over its lax efforts to enforce the arms embargo, while praising the Bush Administration. "In contrast to that leadership of 2004 and 2005, the United States appears to have now joined the group of influential states who sit by quietly and do nothing to ensure that sanctions protect Darfurians," Enrico Carisch, who was the top U.N. investigator of violations of the arms embargo until October, said in written testimony before a House Foreign Affairs subcommittee on Africa.

The Sudanese aren't even the hardest of cases. Concerted American pressure forced this regime to cut ties with al Qaeda in the 1990s, end aerial bombing and support for slave-hunting militias in the south and accept the 2005 peace deal.

Mr. Obama can summon up tough rhetoric. "Yes, there will be engagement; yes, there will be diplomacy—but there must be consequences when those things fail," he said in Oslo. But the world's rogues might be forgiven for missing the nuances. So far, they've seen only the engaging side of this American President.

Friday, December 11, 2009

Do We Really Need a Systemic Regulator? Based on what we now know about AIG, it's unclear 'too big to fail' institutions are in fact too big to fail

Do We Really Need a Systemic Regulator? By Hal S Scott
Based on what we now know about AIG, it's unclear 'too big to fail' institutions are in fact too big to fail.
WSJ, Dec 11, 2009

The principal assumption underlying the financial regulatory reform legislation working its way through Congress is that certain financial institutions are "too big to fail" because of the severe consequences of "interconnectedness"—a word that entered our lexicon during the financial crisis.

The problem is presented as follows: There are major financial institutions that are systemically important because their failure can, due to interconnectedness, bring down other large financial institutions. A chain reaction of such failures is unacceptable since it would disrupt our economic system. The chain reaction must be stopped after the fact by the use of taxpayer-funded bailouts that avoid the kinds of losses for investors or counterparties that would normally occur in bankruptcy. Finally, taxpayers need to be protected by new regulations designed to protect against the failure of these major institutions.

But how severe is the threat from interconnectedness? Last month's report by the Special Inspector General for the Troubled Asset Relief Program (Sigtarp) on AIG is illuminating. While the report's focus is on whether Goldman Sachs unduly profited from the Fed's rescue of AIG, more significant is its discussion of why AIG even received an $85 billion rescue. It does not appear to be because counterparties would have failed as a result. According to the report, Goldman had adequate collateral to protect itself against an AIG default. Indeed, the collateral was cash whose value would not have been decreased by a "rush to the exits." There is no reason to assume other counterparties did not follow similar collateral practices.

Viewed in this light, FDIC Chair Sheila Bair's proposal to increase the losses secured counterparties must bear in case of a financial institution's failure seems misguided. Counterparties whose exposure to credit losses is fully backed by collateral are after all "secured." Treating them as if they were unsecured—forcing them to take a "haircut"—in the case of a financial institution's failure would only increase the risks of chain reactions.

An amendment to the House bill ("The Wall Street Reform and Consumer Protection Act") very likely to be adopted today fortunately exempts most derivative contracts from haircuts. But it fails to exempt all short-term repurchase agreements ("repos"). Short-term repos are normally fully secured; if lenders know they will have to take a haircut they will be less likely to extend credit to financial institutions most in need.

Sigtarp further reports that the Fed and the U.S. Treasury were actually more concerned with $88 billion of AIG investor and debt-holder losses: $10 billion on loans by state and local governments; $40 billion for workers in 401(k) plans; and $38 billion for retirement plans. Certainly, these losses would be "connected" to an AIG default. But they did not involve the threat of a chain reaction of financial institution failures. The auto company bailouts also had little to do with the fear of devastation to the financial system.

If large losses by institutional investors and other stakeholders are the real reason why we are concerned with interconnectedness and "systemic risk," then we would have to regulate all large global corporations, not just financial ones, whose failures could trigger similar losses—an impossible task.

The Sigtarp report does mention concern with losses to money market funds, principal holders of $20 billion in AIG commercial paper. It is certainly possible that an AIG default right on top of the Lehman bankruptcy could have led to more money-market funds falling below $1 per share and have intensified the irrational run on funds generally. The answer to the run problem was not to rescue AIG but rather for the government to use, as it did, its lender of last resort powers to stem the runs.

Clearly we need to know far more about the facts of interconnectedness. As a starting point, Congress should require Fed Chairman Ben Bernanke and Treasury Secretary Tim Geithner to give the American people a complete account, with supporting documentation, of why the Fed and Treasury thought it was important to rescue AIG. This account should include a detailed analysis of counterparty exposure to the extent this is claimed to have played a significant role in their decision.

If it turns out that there are no severe consequences to the financial system from interconnectedness, then do we really need to control the risk of large financial institutions by imposing heightened capital or new liquidity requirements? Indeed, why would we need a systemic-risk regulator at all? Congress, as part of its reform legislation, should mandate the creation of a new expert commission designed to fully investigate the extent and consequences of interconnectedness before any new regulation of systemically important institutions is actually adopted.

Without real adverse consequences from interconnectedness, the too-big-to-fail problem becomes much more manageable. Public money might still have to be injected into a failed institution to avoid a sudden economic disruption, but this would only be after losses were fully imposed on the private sector without fear of a chain reaction. Thus, we could avoid the untenable situation of private gains and public losses that we have persuaded ourselves we are faced with today.

Mr. Scott is professor of international financial systems at Harvard Law School and the director of the Committee on Capital Markets Regulation.

The Disarmament President - Obama's Oslo speech versus the real nuclear world

The Disarmament President. WSJ Editorial
Obama's boffo Oslo speech versus the real nuclear world.
The Wall Street Journal, Dec 11, 2009, page 12

President Obama gave a gracious speech yesterday accepting his Nobel Peace Prize, starting with the humble note that he has yet to earn it. If his Oslo hosts expected a woolly-headed address about peace in our time, they also didn't get it. He stated clearly that sometimes war is necessary to defend the peaceable and to serve justice and liberty. He even hit the George W. Bush note that "evil does exist in the world."

Congratulations, Mr. President.

On the other hand, Mr. Obama also didn't disappoint the Norwegians, who in giving the award had cited his "work for a world without nuclear weapons." He repeated his commitment to that cause, starting with his effort to rework the Strategic Arms Reduction Treaty of 1991 that expired December 5. So it's worth checking in to see how his disarmament vision is faring in the rougher world of rogues and national interest. The answer is not so well.

The Administration decided that rather than negotiate an extension of the existing Start treaty, a whole new arrangement to limit warheads and delivery systems should be crafted. In July, the U.S. and Russia signed a "framework agreement" to reduce stockpiles by as much as a third. Alas, the Administration was so focused on the numbers that it neglected the stickier details—such as verification, and whether the current Start regime would stay in place if negotiations dragged on.

Though the far weaker party, the Russians have figured out their leverage over an Administration eager to show any progress. Pushing that advantage, Russia has already secured lower ceilings on nuclear weapons and delivery vehicles, scaled back verification, and pocketed other strategic concessions.

Let's take those in order. The U.S. looks likely to agree to cut the number of permitted delivery vehicles, such as missiles, long-range bombers and submarines, by half, to 800 or less. This is to Russia's advantage, which as of last spring had 814—and not all of them in working condition. Many of America's 1,198 nuclear delivery vehicles—from B-2 bombers to ICBMs—are being fitted with conventional weapons. The ceilings in a new Start would likely make no distinction between bomb types. If the goal is to move away from nukes, why limit the military's capacity to deploy conventional weapons?

As for verification, with fewer allowable warheads, Ronald Reagan's "trust but verify" maxim applies more than ever. Yet Russia wants to reduce oversight, and it specifically told the U.S. that continuous monitoring at the Votkinsk Machine Building Plant would end once Start expired. The Russians are building new RS-24 mobile nuclear missiles at Votkinsk. According to one Russian general, the RS-24 will by 2016 constitute four-fifths of its ICBM forces. Without monitoring, the U.S. won't know for sure how many of these missiles the Russians make and where they are deployed.

While Russia invests in new warheads and missiles, the Obama Administration has yet to lay out its own plans for updating the U.S. nuclear arsenal. Even staunch proponents of arms control concede that to be able to reduce the quantity of U.S. arms, we have to improve the quality. The Senate should ask why the White House isn't.

The Russians also refused to discuss their huge advantage in tactical weapons, and the Administration said OK. After the July "framework agreement," Russia signalled that U.S. plans to deploy missile defenses in Poland and the Czech Republic stood in the way of a final deal. Mr. Obama obliged, informing the Poles and Czechs of his reduced defenses late on the day before the sixth round of Start talks in Geneva. The announcement pleased the Russians, though it still hasn't got Washington a deal. Stay tuned for more concessions as U.S. negotiators try to get it before the year's end.

Meanwhile, the world's rogues continue to pursue nuclear weapons, and Mr. Obama said yesterday that "it is incumbent upon all of us to insist that nations like Iran and North Korea do not game the system." He added that "we must develop alternatives to violence that are tough enough to change behavior." But all the President has to show for a year of courting these regimes is their refusal even to consider giving up either their weapons (North Korea) or their growing capacity to make them (Iran).

The French, for one, see this danger plainly and want the U.S. to press harder on Tehran. But on these hard cases, the Administration can't muster the same sense of urgency it is bringing to the cause of an unnecessary arms control pact with Russia. Mr. Obama is right that he still has to earn that Nobel.

Thursday, December 10, 2009

The United States and the Western Hemisphere: Partnership and Shared Responsibility

The United States and the Western Hemisphere: Partnership and Shared Responsibility. Bureau of Public Affairs, State Dept
December 10, 2009

"We are committed to working with you to keep our people safe and secure, to protect and harness our natural resources and to widen opportunity and prosperity. To achieve the shared prosperity we seek, we must integrate our commitment to democracy and open markets with an equal commitment to social justice."

— Secretary of State Hillary Rodham Clinton

President Obama and Secretary of State Clinton have met every democratically elected leader in the Western Hemisphere, part of a forward-looking U.S. approach to the region that emphasizes shared responsibility for challenges and relationships. Our engagement with our hemispheric neighbors includes pragmatic and concrete partnerships addressing common challenges and advances a shared regional agenda of inclusive prosperity, democratic governance and citizen safety.

Commitment to Social and Economic Justice
The United States supports policies that broaden social opportunity and mobility, create a wider foundation for growth and ensure the benefits of growth and trade are more widely distributed, particularly among traditionally marginalized groups.

  • The U.S.-Brazil Joint Action Plan to Eliminate Racism breaks new ground in cooperation on racial issues and opens the way to similar dialogues with other countries.

New Partnerships Benefiting the Region’s Poorest and Most Vulnerable Citizens

  • The Pathways to Prosperity in the Americas Initiative fosters shared prosperity by expanding economic opportunities.
  • Microfinance Growth Fund for the Americas puts money in the hands of small and micro businesses that affect people’s daily lives.
  • The Inter-American Social Protection Network facilitates country-to-country partnerships to design or improve social protection programs, starting with conditional cash transfer programs.
  • The Energy and Climate Partnership of the Americas is a demand-driven, flexible approach to enhance energy efficiency and infrastructure, by promoting technology sharing and clean energy use.

Commitment to Citizen Safety
The United States and the nations of the Western Hemisphere have developed a series of partnerships to increase public safety and strengthen our ability to address a wide range of traditional and transnational threats, including health and natural disasters. These programs address local, transnational and white collar crime including corruption, as well as the links between these threats and the region’s social and economic challenges.

  • The Merida Initiative broadens and deepens our cooperation with our partners in Mexico and Central America to strengthen the rule of law institutions necessary to ensure citizen safety.
  • The Caribbean Security Basin Initiative reflects our commitment to greater shared security throughout the Caribbean and will address a broad spectrum of issues affecting the safety of citizens across a 15-nation region.
  • Emergency Management Agreements with Mexico and Canada have strengthened emergency communication capabilities and allowed our countries to develop effective responses to pandemic outbreaks.
  • The Colombia Strategic Development Initiative is a comprehensive approach to sustain stabilization gains made in Colombia by increasing the presence and impact of economic and social development institutions.

Bicentennials: 2010 is an important year of bicentennial celebrations in the Americas. Argentina, Chile, Colombia and Mexico will all commemorate 200 years of independence. During this "Year of the Bicentennial," we will showcase a history of deepening integration in the hemisphere and a series of new partnerships with our neighbors to strengthen the ability of democracies to deliver safety and prosperity to all their citizens.

Wednesday, December 9, 2009

For Global Finance, Global Regulation

For Global Finance, Global Regulation. By Gordon Brown and Nick Sarkozy
Proposals that deserve consideration include taxes on financial transactions and 2009 bank bonuses.
WSJ, Nov 12, 2009

Europe led the way last year in facing down the global financial crisis, restructuring our banking system and strengthening the global financial system. The European Union was also at the forefront in calling for a new forum for economic cooperation of G-20 leaders. And from the outset of the crisis, it was Europe that promoted the fiscal stimulus—and sought to coordinate it globally—that has been a major factor in preventing recession becoming a world-wide depression.

Now we need to once again lead the way in forging a new global consensus.

Stable, open and competitive European financial markets are essential to global growth. We recognize the importance to Europe of ensuring that we have globally competitive financial services, and the importance of developing world-class financial centers such as London and Paris.

But the way global financial institutions have operated raises fundamental questions that we must—and can only—address globally.

We have found that a huge and opaque global trading network involving complex products, short-termism and too-often excessive rewards created risks that few people understood. We have also learned that when crises happen, taxpayers have to cover the costs. It is simply not acceptable for them to foot the bill for losses in a deep downturn, while institutions' shareholders and employees enjoy all the gains as the economy recovers.

Better regulation and supervision are the means by which the risk to the taxpayer can be reduced for the longer term.

In regard to regulation, the EU has adopted a comprehensive set of new rules for the financial sector to avoid the repetition of the crisis: control over credit rating agencies, stronger capital requirements on complex products such as securitization, and strengthened deposit guarantee schemes. We have set up strict rules to make sure that compensation systems avoid excessive risk taking. We will also implement stricter capital rules for banks.

We also have agreed on a more efficient system for supervision of the financial sector within Europe to better monitor systemic risks, to ensure that EU regulation is applied consistently, to settle disagreement between national supervisors, and to deal with crisis situations. Banks must now hold sufficient capital, ensure liquidity, and reward only genuine value creation and not short-term risk-taking.

This crisis has made us recognize that we are now in an economy which is no longer national but global, so financial standards must also be global. We must ensure that through proper regulation, the financial sector operates on a level playing field globally.

There is an urgent need for a new compact between global banks and the society they serve:

A compact that recognizes the risks to the taxpayer if banks fail and recognizes the imbalance between risks and rewards in the banking system.

A compact that ensures the benefits of good economic times flow not just to bankers but to the people they serve; that makes sure that the financial sector fosters economic growth.

A compact that ensures financial institutions cannot use offshore tax havens to negate the contribution they justly owe to the citizens of the country in which they operate—and so builds on the progress already made in ending tax and regulatory havens.

Therefore, we propose a long-term global compact that will encapsulate both the responsibilities of the banking system and the risk they pose to the economy as a whole. Various proposals have been put forward and deserve examination. They include resolution funds, insurance premiums, financial transaction levies and a tax on bonuses.

The global nature of the economy today requires global financial standards, say French President Nicolas Sarkozy and Britain's Prime Minister Gordon Brown, seen above at the G20's London summit in April.

Among these proposals, we agree that a one-off tax in relation to bonuses should be considered a priority, due to the fact that bonuses for 2009 have arisen partly because of government support for the banking system.

However, it is clear the action that must be taken must be at a global level. No one territory can be expected to or be able to act on its own. And if we can find a solution, implemented consistently across the major economies, then we may find a way to ensure that taxpayers do not pay in a systemic crisis for the risks taken on by the banking sector. We might also be able to help the funding of our Millennium Development Goals and address climate change.

To achieve global coordination, we now propose a new process of deliberating and setting macroeconomic strategy, starting with the IMF report on global contributions and leading to a major discussion at the G-20 meetings chaired by South Korea next year. Through this process, we need to correct and prevent the build up of global imbalances. We need to enhance coordination at the global level so that foreign exchange volatility does not create a risk to the recovery. Each country should take its fair share of reducing global imbalances.

Stability and confidence requires us to bring financial markets into closer alignment with the values held by families and business owners: Rewarding hard work, responsibility, integrity and fairness.

People rightly want a post-crisis banking system which puts their needs first. To achieve that, nothing less than a global change is required.

Mr. Brown is prime minister of Great Britain. Mr. Sarkozy is the president of France.

Preventing Biological Weapons Proliferation and Bioterrorism

Preventing Biological Weapons Proliferation and Bioterrorism. By Ellen Tauscher, Under Secretary for Arms Control and International Security

Address to the Annual Meeting of the States Parties to the Biological Weapons Convention
Geneva, Switzerland,December 9, 2009


Photos | Video: Part 1; Part 2

Mr. Chairman, distinguished delegates, thank you for your warm welcome.

Before I begin, I want to recognize our Chairman, Ambassador Grinius, for his personal commitment to this issue. His skill in bringing ideas and expertise together to explore opportunities, and to improve international disease surveillance under the BWC umbrella have been invaluable.

The United States is confident that with your leadership, progress made this year on disease surveillance can translate into sustainable commitments.

I also want to acknowledge the quiet but solid behind-the-scenes work of the Implementation Support Unit. Thank you.

I have come here today to share with you President Obama’s strategy for preventing biological weapons proliferation and bioterrorism.

The United States intends to implement this strategy through renewed cooperation and more thorough consultations with our international counterparts in order to prevent the misuse and abuse of science while working together to strengthen health security around the world.

When it comes to the proliferation of bio weapons and the risk of an attack, the world community faces a greater threat based on a new calculus. President Obama fully recognizes that a major biological weapons attack on one of the world’s major cities could cause as much death and economic and psychological damage as a nuclear attack.

And while the United States remains concerned about state-sponsored biological warfare and proliferation, we are equally, if not MORE concerned, about an act of bioterrorism, due to the increased access to advances in the life sciences.

Around the world, we are experiencing an unparalleled period of scientific advancement and innovation in biology.

Techniques that once were cutting edge innovations are now commonplace. Capabilities once found only in a few advanced laboratories are increasingly wide-spread.

We ALL hope that this science is used for good, but we cannot ignore that it also can be used for ill.

Neither I, nor anyone else in the Obama Administration, need any further evidence of the terrible nature and consequences of a bioterrorism attack. I have, unfortunately, seen the dangers of bioterrorism up close. I served as a Member of Congress when a small amount of anthrax was mailed to the United States Senate in October 2001, just weeks after the September 11 terrorist attacks.

A few envelopes containing anthrax spores paralyzed the Congress. The office buildings of both the House and the Senate were closed down almost immediately. My offices in the Longworth Building were closed for 8 weeks to be sanitized. Five people who came into contact with spores from the letters were killed and hundreds more were put on antibiotics. Years later, no one has been brought to justice and it appears that a single person may have perpetrated these attacks.

This underscores the fact that significant capabilities for harm are already available to small groups and individuals and the prospect of bioterrorism represents a growing risk for the global community. Already we have seen terrorist groups like Al Qa’ida seek biological materials and expertise in order to conduct a biological attack.

That is why we in the United States are calling for all of you to join us in bolstering the Biological Weapons Convention, the premier forum for dealing with biological threats.

The Obama administration’s new strategy for countering biological threats—both natural and man-made—rests upon the main principle of the Biological Weapons Convention: that the use of biological weapons is “repugnant to the conscience of mankind.”

That’s why we believe we have developed an approach that strikes a balance between supporting scientific progress and curbing and stopping the potential for abuse.

Over the last several months, the Obama administration has engaged in a thorough review of our approach with scientists, academics, NGO’s and government officials.

We have determined that we have made considerable progress in recognizing and responding to a potential biological attack or outbreak of disease, although we can do more.

More importantly, the Administration concluded that there was no comprehensive strategy to address gaps in our efforts to prevent the proliferation of biological weapons and scientific abuse.

So just last week President Obama approved a new National Strategy for Countering Biological Threats.

Our new strategy has a clear, overarching goal … to protect against the misuse of science to develop or use biological agents to cause harm.

Copies of that strategy have been supplied to all of you. I would like to request that the strategy document be circulated as an official conference room paper.

Let me outline the broad goals of the strategy:

First, we will work with the international community to promote the peaceful and beneficial use of life sciences, in accordance with the BWC’s Article Ten, to combat infectious diseases regardless of their cause. We will work to promote global health security by increasing the availability of and access to knowledge and products of the life sciences to help reduce the impact from outbreaks of infectious disease whether of natural, accidental or deliberate origin.

Second, we will work toward establishing and reinforcing norms against the misuse of the life sciences. We need to ensure a culture of responsibility, awareness, and vigilance among all who use and benefit from the life sciences to ensure that they are not diverted to harmful purpose.

Third, we will implement a coordinated approach to influence, identify, inhibit, and interdict those who seek to misuse scientific progress to harm innocent people. We will seek to obtain timely and accurate information on the full spectrum of threats and challenges. This information will allow us to take appropriate actions to manage the evolving risk.

Finally, and most relevant to this body, we want to reinvigorate the Biological Weapons Convention as the premier forum for global outreach and coordination. The Biological Weapons Convention embodies the international community’s determination to prevent the misuse of biological materials as weapons. But it takes the active efforts of its States Parties – individually, and collectively – to uphold these commitments that continue to bolster the BWC as a key international norm.

The United States wants to work to ensure that this is the principal forum dedicated to these issues. We appreciate and applaud this forum’s past efforts, and commit to engaging fully as we work together towards our common goals.

Before describing our proposals to reinvigorate the BWC, let me reiterate that the Obama Administration’s commitment to the Biological Weapons Convention is steadfast. The United States will continue to meet its Article One commitments not to develop, acquire, produce or possess biological weapons.

But I want to be clear and forthcoming and I hope this will not be a surprise to anyone. The Obama Administration will not seek to revive negotiations on a verification protocol to the Convention. We have carefully reviewed previous efforts to develop a verification protocol and have determined that a legally binding protocol would not achieve meaningful verification or greater security.

It is extraordinarily difficult to verify compliance. The ease with which a biological weapons program could be disguised within legitimate activities and the rapid advances in biological research make it very difficult to detect violations. We believe that a protocol would not be able to keep pace with the rapidly changing nature of the biological weapons threat.

Instead, we believe that confidence in BWC compliance should be promoted by enhanced transparency about activities and pursuing compliance diplomacy to address concerns.

I know there are some that may disagree with this decision. Instead, I would urge you to join us in implementing the more robust BWC activities already underway.

We want to develop a rigorous, comprehensive program of cooperation, information exchange, and coordination that builds on and modifies as necessary the existing Work Program approach.

As we look toward the 2011 Review Conference, the United States believes that a reinvigorated, comprehensive Work Program is the best way to strengthen the Convention. So I would ask you to demonstrate your good faith and commitment to the BWC by joining us in increasing transparency, improving confidence building measures and engaging in more robust bilateral compliance discussions.

To highlight our three areas of emphasis in this area, let me provide a bit more detail about our goals.

First, we seek to promote confidence in effective treaty implementation:

A key consideration related to any treaty is the ongoing need to promote confidence in compliance. We believe that greater emphasis should be placed on voluntary measures to provide increased confidence. We must also increase participation in the existing Confidence-Building Measures. We should work together to review the Confidence Building Measures forms to assess their effectiveness and identify areas for improvement. States Parties, in conjunction with the Implementation Support Unit, should provide appropriate assistance to meet these goals.

In a gesture of our transparency, I want to announce that the United States will

  • Invite the 2010 Chairman to visit our National Interagency Biodefense Campus in Maryland. The facilities there include the high containment laboratories of three different U.S. government agencies and provide an excellent opportunity to highlight the steps we are taking to ensure safe and secure research for the benefit of public health, and;

  • Work toward posting future annual CBM submissions on the public access side of the Implementation Support Unit website and we will encourage other Parties to follow suit.
As part of this effort, we must seek to make membership in the BWC universal. We will be looking to work with you on outreach efforts to countries that have not yet joined the Convention.

Second, we will seek to enhance cooperation through the BWC on natural and deliberate disease threats to complement the work being done by the World Health Organization and other international bodies. In order to implement our Article Ten commitments, it is critical that we work together to achieve, sustain and improve international capacity to detect, report, and respond to outbreaks of disease, whether deliberate, accidental or natural. This includes implementation of the World Health Organization’s International Health Regulations.

Fundamentally, if we improve a country’s ability to respond to natural outbreaks, we have improved their capability to deal with bioterrorism.

In this respect, the United States is dedicated to continuing our substantial assistance and we want to work closely with other BWC States Parties to enhance and coordinate these efforts - including through the G-8 Global Partnership, United Nations Security Council Resolution 1540 and other mechanisms.

The BWC should be fully utilized as a forum to inform States Parties of related bilateral and regional activities, to consult on new avenues of multilateral engagement, and to promote the support of the international community.

Greater cooperation and technical assistance are key to achieving and sustaining the capabilities we need to prevent biological weapons use and to combat infectious diseases.

To this end:
  • The Center for Disease Control will soon become the world’s first World Health Organization Collaborating Center for implementing International Health Regulations. It will assist the WHO and other international partners to help build the necessary global infrastructure to fully implement the IHRs in all six WHO Regions.

  • In May, we propose a two-day meeting to share information on offers to support IHR implementation, hear from those receiving assistance about their experiences and to make specific suggestions for improvement.

  • We will follow up with a meeting in August that builds upon the May discussion and looks at new technologies and new approaches to build the core capacities on disease surveillance needed under the IHRs.
As the final piece of our strategy to enhance this forum, we want to make the BWC the premier forum for discussion of the full range of biological threats – including bioterrorism – and mutually agreeable steps States can take for risk management.

The BWC should provide an international forum for advancing the dialogue on pathogen security and laboratory biosafety practices, and for promoting legislation, guidelines and standards through cooperation and partnership.

We must work here to develop international standards and practices for these important elements that advance our mutual security. To this end, we would like to announce that:
  • Our FBI and CDC have developed best practices and guides on the conduct of joint criminal and epidemiological investigations of suspected intentional biological threats or incidents. We will bring our experts to discuss this in more detail at the August Experts Meeting.

  • We also propose a workshop just after the August Experts Meeting where all interested countries can share information on bio risk management training, standards, and needs.
The threat of a bio attack is much like other transnational threats and challenges that we face today: climate change, nuclear proliferation, and food security. We’re all in the same boat and none of us, no matter how big, can afford to go it alone.

The United States takes biological weapons threats very seriously and that’s why we have adopted an energetic new approach that is tailored to counter today’s threats.

In closing, I want to thank you for this opportunity to reaffirm the Obama Administration’s support for revitalizing the BWC. I hope to join you once again at the 2011 Review Conference as we continue to move forward together on the critical work of countering biological threats.

Thank you, Mr. Chairman.

International Counterterrorism Policy in the Obama Administration

International Counterterrorism Policy in the Obama Administration. By Daniel Benjamin, Coordinator, Office of the Coordinator for Counterterrorism

Jamestown Conference, Washington, DC December 9, 2009

Good morning. It is a great pleasure to be here. I’ve been a devoted reader of Jamestown publications since you first stepped up to the challenge of the radically changed post-9/11 security environment, with the introduction of the Terrorism Monitor. I can still recall being interviewed by Jamestown for the third issue of volume one of the Monitor, and I had the pleasure of having this same speaking slot two years ago in a somewhat less official capacity. As you can imagine, I’m delighted to have the opportunity to speak to you today about the Obama administration’s counterterrorism policy.

If memory serves, when I spoke to you two years ago, my view was that the United States had developed great skills at what I called tactical counterterrorism–taking individual terrorists off the street, and disrupting cells and operations. On the strategic side, I thought we were losing ground. Now, I believe the administration is redressing that gap. In my roughly six months in office, my view of our tactical capabilities in the areas of intelligence, the military, and law enforcement have more than amply been confirmed. One of the great rewards of government service is the chance to work with colleagues in all of these areas, and I must say that their level of competence and professionalism is really extraordinary. When I consider how far we have come since my days at the NSC in the late 90s, I think it is quite remarkable.

And we are now working to match their proficiency by formulating the kind of policies that seek to shape the environment that terrorists operate in so that they find their efforts more constrained. We are rebuilding and reinvigorating old partnerships to combat terror and establishing new ones with others who have been on the sidelines. As we look at the problem of transnational terror, we are putting at the core of our actions a recognition of the phenomenon of radicalization—that is, we are asking ourselves time and again: Are our actions going to result in the removal of one terrorist and the creation of ten more? What can we do to attack the drivers of radicalization, so that al- Qaida and its affiliates have a shrinking pool of recruits? And finally– and vitally–are we hewing to our values in this struggle? Because as President Obama has said from the outset, there should be no tradeoff between our security and our values. Indeed, in light of what we know about radicalization, it is clear that navigating by our values is an essential part of a successful counterterrorism effort. Thus, we have moved to rectify the excesses of the past few years by working to close the prison at Guantanamo Bay, forbidding enhanced interrogation techniques, and developing a more systematic method of dealing with detainees. We are also demonstrating our commitment to the rule of law by trying Khalid Sheikh Muhammad and other al-Qaida operatives in our court system.

Finally, we have a strategy for success in Afghanistan and Pakistan. The President has put forward a clear plan to constrain the Taliban and destroy the al-Qaida core, and the administration is putting up the resources necessary to achieve that goal. Moreover, we are working with Pakistan to establish the kind of relationship, based on trust and mutual interests, that will lead to the defeat of radicalism in that country, which has in recent months seen so much violence. We understand the trust deficit, built up over decades that created the current situation. We know that challenges in the region will not be overcome overnight. But we believe we are now firmly on the right track.

Before going any further, we need to consider the threat today: On any given day, al-Qaida remains the foremost security threat the nation faces. Yet having said that, it is clear that for al-Qaida, it has been a difficult period. The group is under severe pressure in Pakistan and Afghanistan, where the U.S. and its allies have succeeded in severely degrading its operational leadership. The coming troop increase in Afghanistan will further reduce al-Qaida’s capabilities and those of other extremist organizations. The Pakistani military has been working to eliminate militant strongholds in its territory. As a result, al-Qaida is finding it tougher to raise money, train recruits, and plan attacks outside of the region.

In addition to these operational setbacks in Afghanistan and Pakistan, al-Qaida has not been successful in carrying out the attacks that would shake governments in the Arab world, which continues to be a primary long-term focus. It has failed to mobilize the masses–and this is a key point–which they have repeatedly said is their means of establishing Islamic emirates in the region.

Finally, there has been a decline of support for al-Qaida’s political program and there are several reasons for this: indiscriminate targeting of Muslim civilians in Iraq and Pakistan alienated many who were previously sympathetic to al-Qaida’s larger aspirations. The result has been both popular disaffection and a backlash from clerics in Muslim countries who have issued fatwas against the killing of other Muslims, notably in Iraq, although I note that this has yet to happen on a large scale in Afghanistan.

Second, al-Qaida’s ideological hard line has alienated more pragmatic organizations and individuals in the wider militant community. It has also created confusion over who carries the true banner of Islamic resistance to Western imperialism.

Third, denunciations of al-Qaida by extremist clerics have damaged the religious legitimacy of the group and raised questions about the proper use of violence in countries where there is no overt military action.

Fourth, al-Qaida and similar groups are becoming increasingly vague about who the primary enemy is, creating confusion in the militant community about the fundamentals of its strategic direction.

Yet despite these setbacks, al-Qaida has proven to be adaptable and resilient in two arenas. The first is in ungoverned or under-governed areas, often where there are tribal conflicts in which it can attach itself to the different parties. Thus in Yemen, al-Qaida operatives are marrying into the local tribes, and taking up their grievances against the government. In the sparsely populated Sahel, al-Qaida operatives, sometimes operating with individual local tribesmen and nomads, kidnap foreigners. In the FATA, operatives are marrying into local Pashtun tribes and are serving the larger interests of the Taliban insurgency by providing technical know-how and disseminating propaganda. And in Somalia, al-Qaida’s allies in al-Shabaab now control significant tracts of territory. These weakly-governed or entirely ungoverned areas are a major safe haven for al-Qaida and its allies and to dismiss their significance is to misunderstand their historical importance for training, recruitment, and operational planning. Quite frankly, the problem of un- and under-governed spaces is one of the toughest ones this and future administrations will face.

The second arena where Sunni radicals continue to succeed is in persuading religious extremists to adopt their cause, even in the United States. A bus driver, Najibullah Zazi, was trained in Pakistan and now faces charges in federal court for planning to set off a series of bombs in the United States. An indictment that was unsealed Monday in Chicago portrays an American citizen–David Headley–playing a pivotal role in last year’s attack in Mumbai, which killed more than 170 people and dramatically raised tensions in South Asia. So even if this radical movement is not mobilizing the masses, it is still galvanizing enough people to take to violence and poses a continuing, powerful threat. The importance of these two cases should not be glossed over–the conspiracies these men were engaged in had roots in the FATA, and eight years after 9/11, should give us all pause. The threat to the U.S. remains substantial and enduring despite the operational constraints on al-Qaida central.

It is also multifaceted as we have seen in the movement of young men, many of them motivated by a sense of ethnic duty, who have left their communities in Minnesota, been radicalized in Somalia, and fought and died for al-Shabaab.

As the example of David Headley indicates, al-Qaida is not the only group with global ambitions that we have to worry about. Lashkar e-Taiba has made it clear that it is willing to undertake bold, mass-casualty operations with a target set that would please al-Qaida planners. The group’s more recent thwarted conspiracy to attack the US embassy in Bangladesh should only deepen concern that it could evolve into a genuinely global terrorist threat. And let me say as an aside, very few things worry me as much as the strength and ambition of LeT, a truly malign presence in South Asia. We are working closely with allies in the region and elsewhere to reduce the threat from this very dangerous group.

As you know, I worked on terrorism in the White House when al-Qaida first surfaced in the late 1990s and I can tell you now, after having access to the intelligence again, that the threat has become far more complicated due to the proliferation of groups and the cross-pollination of networks. The global radical milieu has become thicker. There is so much more that we have to keep tabs on than there was in 1999.

So what are we doing to meet this challenge? Faced with this continuing and evolving threat, President Obama has articulated a clear policy – to disrupt, dismantle, and defeat al-Qaida and its allies. That is our overriding objective, and to achieve it we are using all the tools at our disposal. In weakly-governed areas we are collaborating with the relevant local authorities to bolster their security forces to prevent al-Qaida safe havens. Moreover, our intelligence and law enforcement agencies and those of our allies continue to disrupt terrorist plots at home and abroad–as we have here in Denver and New York, in London, and in other countries around the world. We are working with the international financial community to deny resources to al-Qaida and its supporters. Now, as al-Qaida affiliates turn to kidnapping for ransom to raise funds, we are urging our partners around the world to adopt a no-concessions policy toward hostage-takers so we can diminish this alternative funding stream in regions like the Sahel, the FATA, and Yemen.

But this is not enough, as the continuing flow of recruits–and the lengthening roll call of conspiracies testifies. As President Obama succinctly put it, “A campaign against extremism will not succeed with bullets or bombs alone.” We need to look to look to what my colleague Deputy National Security John Brennan has called the upstream factors. We need to confront the political, social, and economic conditions that our enemies exploit to win over the new recruits…the funders…and those whose tacit support enables the militants to carry forward their plans.

The threat is global and our enemies latch on to grievances on behalf of the entire Muslim world, so we must work to resolve the long-standing problems that fuel those grievances. At the top of the list is the Arab-Israeli conflict, and, as you know, President Obama, Secretary Clinton, and Special Envoy George Mitchell are working very hard to resolve it.

Even with their efforts, peace in the Middle East will take time, and as we know, it will not eliminate all of the threats. But while the big policy challenges matter in radicalization, local drivers are critical as well. We are developing tailored-approaches to alter them. How do these different elements of our global counterterrorism strategy fit together?

To be sure, terrorism is a common challenge shared by nations across the globe—one that requires diplomacy—and one that the United States cannot solve alone. As Secretary Clinton has said, “Today's security threats cannot be addressed in isolation. Smart power requires reaching out to both friends and adversaries, to bolster old alliances and to forge new ones.” The Obama administration has worked hard to reach out and, on the basis of mutual interests and mutual respect, to forge international coalitions. The administration has been working at reinvigorating alliances across the board and reengaging in the multilateral fora concerned with counterterrorism—fora that, in all honesty, were neglected for some time at the many UN entities, the G8, and the vast range of regional organizations that are eager to engage on counterterrorism issues.

Building the counterterrorism capacity of our partners at the national level is also a top priority. Consistent diplomatic engagement with counterparts and senior leaders helps build political will for common counterterrorism objectives. When the political will is there, we can address the nuts and bolts aspect of capacity building. We are working to make the counterterrorism training of police, prosecutors, border officials, and members of the judiciary more systematic, more innovative, and far-reaching, and we are doing this through such efforts as the Antiterrorism Assistance Program. In its more than 25-year old history, the ATA program has trained more than 66,000 professionals from 151 countries, providing programs tailored to the needs of each partner nation and to local conditions.

ATA is just one of many programs–on the civilian and the military sides of the house—that is increasing the ability of others to ensure their own security. With this kind of work, we are making real the President’s vision of shared security partnerships as an essential part of US foreign policy. This is both good counterterrorism and good statecraft. We are addressing the state insufficiencies that terrorism lives on, and we are helping invest our partners more effectively in confronting the threat–-rather than looking thousands of miles away for help or simply looking away altogether.

We are also addressing the local drivers of radicalization that still lead large numbers of people to adopt al-Qaida’s ideology, and as I said earlier, we understand the dangers of radicalization, and we are working both to undermine the al-Qaida narrative and to ameliorate the conditions that make it attractive. We know that violent extremism flourishes where there is marginalization, alienation, and perceived–-or real–-relative deprivation. In recognition of this, my first step has been to build a unit focusing on what we in the government call “Countering Violent Extremism” in my office to focus on local communities most prone to radicalization. There is a broad understanding across the government that we have not done nearly enough to address underlying conditions for at-risk populations–-and we have also not done enough to improve the ability of moderates to voice their views and strengthen opposition to violence.

Adopting a tailored-approach to countering violent extremism does not mean we can neglect broader structural problems. There is no denying that when children have no hope for an education, when young people have no hope for a job and feel disconnected from the modern world, when governments fail to provide for the basic needs of their people, when people despair and are aggrieved, they become more susceptible to extremist ideologies. But a tailored-approach to CVE requires identifying which of these problems are driving radicalization and are amenable to change with the help of local governments and leaders who understand the problems best.

Over time, the measures and the methods I have described above will reduce terrorists’ capacity to harm us and our partners. No element can be neglected if we are to succeed since they reinforce one another. Global engagement builds coalitions based on mutual interests and mutual respect. And these coalitions, in turn, help us partner with individual nations to enhance their capacity to counter extremism. This, finally, enables us to work with them to develop tailored-approaches to preventing extremists from becoming violent extremists.

I don’t want to leave you today with the impression that we have figured it all or that there won’t be real setbacks in the future. The contemporary terrorist threat was decades in the making and it will take many more years to unmake it. There is much we still need to learn, especially about how to prevent individuals from choosing the path of violence. But I believe we now have the right framework for our policies, and ultimately, I am confident, this will lead to the decisions and actions that will strengthen security for our nation and the global community.

Thank you for the opportunity to speak here today.

Tuesday, December 8, 2009

Water and Development Alliance Brings Sanitation and Clean Water to Rural South Africa

Water and Development Alliance Brings Sanitation and Clean Water to Rural South Africa
USAID, December 8, 2009

WASHINGTON, D.C. - The U.S. Agency for International Development (USAID) and The Coca-Cola Company (TCCC) have partnered through the Water and Development Alliance (WADA) initiative to bring more than 12,000 people in Ramotshinyadi Village of South Africa access to clean drinking water.

The WADA project aims to shift the way Ramotshinyadi villagers experience and conceptualize healthcare provision, and therefore will emphasize how clean, running water promotes good health. Family Health International South Africa (FHISA), Mvula Trust, and Re-Solve are collaborating to implement the program in Ramotshinyadi.

Malik Jaffer, USAID/Southern Africa HIV/AIDS technical officer, expects the WADA project to improve health in the region. "USAID wants to help South African children and their families get the basic essentials they need to lead happy, healthy lives," he says. "Without clean water and sanitation, these kids don't stand a chance."

WADA is investing a total of $1.6 million over a three years period to build the appropriate water infrastructure in Ramotshinyadi Village - a priority health district in Limpopo Province--and two other villages, ensuring that every street has water pipes.

"The Bophelo Ka Metsi project further demonstrates Coca-Cola's commitment as a company to contribute towards the development of our communities. Our continent's chronic water shortage also prompts us, together with strategic partners such as NGOs and government, to act immediately in overcoming this challenge," said Tulisiwe Mkatshwa, community affairs manager for Coca-Cola South Africa.

Water and health education and knowledge sharing exhibitions showed residents how to practice good hygiene and illustrated the consequences of drinking dirty water. These events culminated in the formal WADA launch on Nov. 27, attended by representatives of the Limpopo Provincial Government; the Greater Tzaneen Municipality, led by Mayor Mushwana; donors USAID; Coca-Cola; Family Health International; and traditional leaders. All attendees pledged to work together to ensure the sustainability of the project.

WADA is a joint initiative between USAID and The Coca-Cola Company that operates in 22 countries worldwide, contributing to protecting and improving the sustainability of watersheds, increasing access to water supply and sanitation services for the world's poor, and enhancing productive uses of water. The Alliance is a positive example of how public-private partnerships can give localized support to those with the greatest needs for water and sanitation services, ensuring that water resources are managed to serve future generations.

For more information about USAID and the WADA initiative, please visit: www.usaid.gov.

Monday, December 7, 2009

Views on PM Hatoyama and the Futenma issue

Views on PM Hatoyama and the Futenma issue. By hikki1224
Dec 07, 2009

Prime Minister Hatoyama publicly pledged to reach the conclusion over US military base issue at Futenma before year-end. However without any explanations, he postponed the conclusion to the next year. This is not responsible behavior as a leader of Japan. At the same time, he emphasizes, as part of his ‘friendship (yuai)’ foreign principle, the increasing importance with Asian countries while proposes to reframe the US-Japan relationship. It is natural to conclude that he gives priority to Asian countries over the US. Some people may even think that his friendship foreign policy may find it difficult to cope with US military presence in Japan.

The Prime Minister should not be indifferent to history. He needs to fully acknowledge the fact that the trust and obligation with the stakeholder countries were not built over night. He is not empowered to scrap all those efforts.

BIS Quarterly Review

BIS Quarterly Review

Dec 07, 2009


The BIS Quarterly Review released today is divided into two parts. We begin with an overview of recent developments in financial markets, before turning in more detail to highlights from the latest BIS data on international banking and financial activity. This is followed by five special feature articles: the first discusses the use and limitations of macro stress tests; the second analyses the relationship between monetary policy and risk-taking by banks; the third provides estimates of the link between government size and macroeconomic stability; the fourth draws lessons from loan provisioning regimes set up in Asia after the crisis of the late 1990s; and the fifth looks at factors driving the appreciation of the US dollar in late 2008.


Overview: continued record low rates spur markets


From early September to late November, a steady stream of mostly positive macroeconomic news reassured investors that the global economy had in fact turned around, but investor confidence remained fragile. This was clearly illustrated towards the end of the period under review, when prices of risky assets dropped sharply as investors reacted nervously to news that government-owned Dubai World had asked for a delay in some payments on its debt.


Market participants expected the recovery to continue, but at times grew wary about its pace and shape due to uncertainty about the timing and speed of withdrawal of monetary and fiscal stimulus as well as the associated risks to economic activity. The unease was compounded by the unevenness of the recovery among different regions of the world, which in turn was seen as increasing the risk that harmful imbalances could build, thereby adding to challenges for policymakers.


In this environment, market developments continued to be driven to a significant degree by ongoing and expected policy stimulus, in particular expansionary monetary policy. As investorsd priced in expectations that interest rates in major advanced economies would remain low, prices of risky assets continued to increase. Equity prices generally rose, in particular in emerging markets. Investment grade credit spreads were little changed, while sub-investment grade spreads narrowed further. Expectations of a prolonged period of low policy rates kept long-term government bond yields down, as did low term premia. Some market commentary pointed to the risk of higher inflation going forward, but both market- and survey-based indicators continued to suggest that price pressures in the largest advanced economies were expected to remain well contained.


The low interest rates in the advanced economies, together with the earlier and stronger recovery in a number of emerging economies, continued to drive significant capital inflows into emerging markets, particularly in Asia and the Pacific. Although difficult to quantify, a related development was increasing FX carry trade activity funded in US dollars and other low interest rate currencies. This resulted in rapid asset price increases in several emerging economies as well as substantial exchange rate appreciation with respect to the US dollar.


Highlights from the BIS statistics


Banks’ international balance sheets continued to contract during the second quarter of 2009, albeit at a much slower pace than in the preceding six months. The $477 billion decline in the total gross international claims of BIS reporting banks was considerably smaller than the reductions registered in the prior two quarters, but was still the fourth largest in the last decade. The shrinkage in international balance sheets was entirely driven by a contraction in interbank claims, which fell by $481 billion. By contrast, international claims on non-banks increased slightly (by $4 billion). Reporting banks’ cross-border claims on emerging market borrowers also showed signs of stabilising. Conversely, their local positions in local currencies in many countries contracted modestly for the first time since the onset of the crisis.


In the first half of 2009, notional amounts of all types of over-the-counter (OTC) derivatives contracts rebounded somewhat to stand at $605 trillion at the end of June, 10% higher than six months before. In contrast, gross credit exposures fell by 18% from an end-2008 peak to $3.7 trillion. Gross credit exposures take into account bilateral netting agreements but not collateral, so they provide a measure of counterparty exposures. The increase in outstanding amounts was due in large part to interest rate derivatives. By contrast, continuing a trend that began in the first half of 2008, outstanding notional amounts of CDS contracts fell to $36 trillion at the end of June 2009.


Activity on the international derivatives exchanges stabilised at around 60% of the pre-crisis level in the third quarter of 2009. Total turnover based on notional amounts was unchanged from the previous quarter, at $425 trillion.


Seasonal factors weighed on activity in the primary market for international debt securities in the third quarter of 2009. Net issuance almost halved to $475 billion, the lowest level since the third quarter of 2008. Depending on the method used, seasonally adjusted issuance either remained stable at a high level or went up slightly. The decline in activity was mainly driven by lower net issuance by borrowers resident in developed economies (–45%), which account for the bulk of borrowing on the international debt securities market. Residents in emerging market economies took advantage of the improved financing conditions and issued $34 billion of international debt securities. This was 52% more than in the second quarter and well above the quarterly average for 2006 and early 2007, prior to the crisis.



Special features


Macro stress tests and crises: what can we learn?


Few, if any, of the macro stress tests undertaken before the current crisis uncovered significant vulnerabilities. Rodrigo Alfaro (Central Bank of Chile) and Mathias Drehmann (BIS) examine the reasons for this poor performance by comparing the outcomes of simple stress tests with actual events for a large sample of historical banking crises. Their results highlight the fact that structural assumptions underlying stress testing models do not match output patterns in many of the past crises. Furthermore, unless macro conditions are already weak prior to the eruption of the crisis, the vast majority of stress scenarios based on historical data are not severe enough. Last, the authors go on to emphasise that stress testing models are not robust, as statistical relationships tend to break down during crises. These insights have important implications for the design and conduct of stress tests in the future.


Monetary policy and the risk-taking channel


In this feature, Leonardo Gambacorta (BIS) argues that low interest rates can encourage banks to take on more risks. He notes that monetary policy may influence banks’ perceptions of, and attitude towards, risk in at least two ways: (i) through a search for yield process, especially in the case of nominal return targets; and (ii) through the impact of interest rates on valuations, incomes and cash flows, which in turn can modify how banks measure and price risk. Using a comprehensive dataset of listed banks, Gambacorta goes on to show that low interest rates over an extended period cause an increase in banks’ risk-taking.


Government size and macroeconomic stability


M S Mohanty and Fabrizio Zampolli (BIS) examine the potential role of government size in stabilising the economy. They find that larger government size, as measured by the share of expenditure in GDP, had been associated with a modest reduction in output volatility in OECD economies since 1970, but that this link, which was small to begin with, seems to have weakened even further since the mid-1980s. Instead, output volatility is driven by factors such as trade openness and exposure to terms-of-trade shocks as well as the volatility of inflation. Interestingly, the same set of factors help to explain the severity of recessions.


Issues and developments in loan loss provisioning: the case of Asia


In the aftermath of the Asian financial crisis of the late 1990s, many jurisdictions in Asia strengthened their approaches to loan loss provisioning, including the adoption of discretionary measures. In this feature, Sarawan Angklomkliew (Bank of Thailand), Jason George and Frank Packer (BIS) discuss how authorities in Asia changed the provisioning regimes in their jurisdictions, and how these changes have strengthened banking systems in the region.


Dollar appreciation in 2008: safe haven, carry trades, dollar shortage and overhedging


Many observers were surprised by the US dollar’s appreciation in late 2008, the sharpest in the period since generalised floating began in 1973. In their feature, Robert McCauley and Patrick McGuire (BIS) argue that a combination of factors contributed to this development. First, the US dollar benefited from the global flight to safety into US Treasury bills. Second, the dollar profited from the reversal of carry trades. Third, a dollar shortage in the international banking market resulted in high dollar interest rates in private markets, which supported the currency. Finally, writedowns of dollar assets left European banks and institutional investors outside the United States overhedged. The resultant squaring of their positions in turn may also have boosted the dollar.

Sunday, December 6, 2009

Ozawa's power, Hatoyama's ulterior motives lie behind Futenma delay

Ozawa's power, Hatoyama's ulterior motives lie behind Futenma delay. By Mariko Yasumoto
Japan Today, Dec 06, 2009

TOKYO — Behind Prime Minister Yukio Hatoyama’s indecisiveness on the future of a U.S. military base in Okinawa Prefecture seems to be the firm determination of his former boss, Ichiro Ozawa, to keep a grip on parliament and even a bigger ulterior motive of the two politicians.

Hatoyama, head of the ruling Democratic Party of Japan, has put on hold a decision on where to relocate the U.S. Marine Corps’ Futenma Air Station, as the leader of a junior partner in the coalition has threatened to leave it if the DPJ goes ahead and moves the base within the prefecture under the existing Japan-U.S. deal.

The threat by Social Democratic Party leader Mizuho Fukushima came as Foreign Minister Katsuya Okada and Defense Minister Toshimi Kitazawa were seeking to solve the relocation issue by the end of this year.

Hatoyama is putting more weight on maintaining power in parliament over the already soured relationship with Washington, which has pressed Japan to resolve it quickly and move the Futenma base in line with the accord.

The DPJ, which won a landslide victory in the August election for the House of Representatives, had to form a coalition with two small partners despite differences over security and foreign policies, as it needs their cooperation in the House of Councillors.

Speculation is now growing that a decision on the U.S. base issue will not be made until after next year’s upper house election, in which the DPJ is widely expected to secure a majority and it can decisively break off what appears to be an awkward coalition.

Political observers say that behind the delay is DPJ Secretary General Ozawa who is widely believed to have wielded his influence behind the scenes over the Hatoyama government since its launch in mid-September.

According to sources close to Ozawa, he has pressured the prime minister’s office and Defense Minister Kitazawa to deal with the relocation issue in a way that would not result in the collapse of the coalition.

At the upper house, the DPJ currently holds less than a majority and needs to join hands with the two parties—the SDP and the People’s New Party—to ensure smooth passage of legislation.

Eiken Itagaki, an independent political analyst who is well-versed in DPJ politics, said that Ozawa warned that the government needs to avoid what the previous Liberal Democratic Party-led government had gone through in a divided parliament.

But there is also a view among some pundits that Hatoyama simply used the coalition partner’s threat as a reason for delaying a decision, as he himself hopes to move not just the Futenma air station but also the entire U.S. military facility outside Okinawa or even outside the country and wanted to take time to find a better solution.

Since the DPJ was in the opposition camp, Hatoyama has repeatedly made comments to that effect.

‘‘I truly wonder if it is appropriate that a military of another country will continue to station in this country forever,’’ he said a few weeks after taking office in mid-September.

Kazuhiro Asano, professor in politics at Sapporo University, said should the DPJ kick the SDP out of the coalition after the election, ‘‘I don’t think Prime Minister Hatoyama will decide to move the Futenma facility to Henoko.’‘

Under the 2006 deal, Tokyo and Washington agreed to transfer the Futenma air station, which currently sits in the center of a residential area in the city of Ginowan, to the coastal area of the Henoko district in Nago, another Okinawa city, by 2014.

Hatoyama has indicated that he wants to wait and see the results of the Nago city mayoral election scheduled for January to determine the will of local voters before making any decision on the relocation.

‘‘He is looking for evidence and reasons that would help him decide to move the base outside the prefecture,’’ Asano of Sapporo University said.

Ozawa, a former DPJ chief, is also against hosting another country’s military in Japan and once advocated for the stationing of a United Nations-sponsored military for the defense of the country.

Itagaki said both Ozawa and Hatoyama are truly seeking a foreign policy stance that depends less on the United States and more on close relationships with such other countries as China and Russia, as promised in the party’s campaign pledges.

Ozawa has once expressed the view that the role of the U.S. military in Japan should be trimmed down, saying the U.S. Navy’s 7th Fleet based in Yokosuka would be ‘‘enough for the U.S. presence in the Far East.’‘

At the bottom of it, the foreign policy that Ozawa and Hatoyama are pursuing over a long term is not so different from that of Fukushima, chief of the pacifist, leftist SDP, the analyst said, suggesting that the DPJ may end up keeping the party in the coalition even after the upper house election.

Recently floated ideas include transferring the Futenma facility to the U.S. territory of Guam, a Japanese coastal airport or a remote island, according to several government sources.

Monday, November 30, 2009

Unconventional monetary policies: an appraisal

Unconventional monetary policies: an appraisal. By Claudio Borio and Piti Disyatat
BIS Working Papers No 292
November 2009

Abstract:

The recent global financial crisis has led central banks to rely heavily on "unconventional" monetary policies. This alternative approach to policy has generated much discussion and a heated and at times confusing debate. The debate has been complicated by the use of different definitions and conflicting views of the mechanisms at work. This paper sets out a framework for classifying and thinking about such policies, highlighting how they can be viewed within the overall context of monetary policy implementation. The framework clarifies the differences among the various forms of unconventional monetary policy, provides a systematic characterisation of the wide range of central bank responses to the crisis, helps to underscore the channels of transmission, and identifies some of the main policy challenges. In the process, the paper also addresses a number of contentious analytical issues, notably the role of bank reserves and their inflationary consequences.

JEL Classification Numbers: E40, E50, E52, E58, E60

Keywords: unconventional monetary policy, balance sheet policy, credit policy, quantitative easing, credit easing, monetary policy implementation, transmission mechanism, interest rates