Sunday, October 19, 2014

Beyond shock and awe.

A colleague called me during the run-up to the Iraq war in March 2003. It is going to be unlike anything the world has ever seen. Shock and Awe. The war will be over before it starts. An inside player in the Bush administration, he was in a position to know what was in store.

Shock and Awe is a the military doctrine that “focuses on the psychological destruction of the enemy’s will to fight rather than the physical destruction of its military forces.” To the Bush administration, Shock and Awe was the name for the onslaught of missiles and bombing that was to initiate the U.S. invasion and would intimidate Saddam, quickly bringing his regime into submission.

Little did we know that the opening days of the second Iraq war marked the end of the era of America as the world's dominant military power. It is not that America's military power declined, but rather the salience of that power. Since the invention of the atomic bomb, the United States has had to choose in any given military or proto-military engagement which weapons were appropriate to use and which were deemed inappropriate or disproportionate to a given conflict. While some envisioned the invention of the atomic bomb as a weapon that would make war itself unimaginable, the invention of increasingly powerful weapons has only complicated the nature of warfare for the dominant power.

In the first days of the Iraq war, the massive missile strikes were delayed in favor of a decapitation strike that failed due to faulty intelligence. Shock and awe never unfolded as the tour de force of the administration's imagination and the war that was to spark an Arab spring, with Iraqis seizing the opportunity to embrace their Jeffersonian future, was an abject failure. It plodded on for a decade until the American public had had enough. Looking back, it is apparent that the opening days of the Iraq war marked a seminal moment in American military power and foreign policy reality, but one that we have yet to discuss, to debate and to learn from as a nation.

This became vividly apparent when ISIS beheaded its first victim, an act to which many had the same immediate and visceral reaction: We should nuke them. A decade earlier, I watched the utterly barbaric video of Abu Musab al-Zarqawi beheading Nicholas Berg, and now, as then, a video of a beheading garners a response unlike any other form of intentional brutality.

Nuke them. Using nuclear weapons would of course be inconceivable. But the visceral response to the ISIS acts encapsulated the larger problem that we now face: We are unwilling to use the military capabilities that we have, and our adversaries understand this. And worse, in not using the capability at our command, we are rendered impotent, unable to respond with means at our command to those who show no such restraint.

Since the fall of the Soviet Union, we have been challenged by what it means to be the dominant superpower in the world. We have deployed military assets around the world, with a specific focus on key regions. We have surrounded the Russian landmass with military assets and a coordinated defense alliance through NATO. We have built a network of bases along China's coastline from the Sea of Japan to the South China Sea. We have a network of military assets surrounding Iran. We have a network of bases in place to defend our interests in the Middle East. And we have aircraft carrier battle groups deployable across the world.

The doctrine of shock and awe--a metaphor for our ability to subdue conflicts through intimidation before they turn into full fledged wars that has been essential to our notion of military power in the world--died in Iraq. Perhaps the limits to what we were willing to do in war were first manifest in Vietnam. And perhaps it was what Ronald Reagan realized when he considered his choices in the aftermath of the bombing of the military barracks in Beirut in 1983 and chose to pull out. But in the wake of Iraq, Americans now know instinctively that, whether for moral, financial or practical reasons, we are not willing to use the military capability that we have so carefully built for so many years. We are no longer interested in pursuing military action as a solution to each new conflict that the world turns to us to solve, but having built our credibility around our military power, we have neither the capability nor the respect for alternative paths to conflict resolution. While for domestic political reasons we have been unable to have a serious national discussion about this new underlying reality, our increasing disinclination to use the military capability that constitutes so much of our identity in the world has become inherently destabilizing.

Vladimir Putin understands this. He understands that he has great latitude to pursue Russia's strategic interests in Ukraine before he will risk seeing any American military response. Xi Jingping understands this as well. He understands that China has great latitude to impose its will and territorial ambitions in the South China Sea before America will consider any serious military response.

And Abu Musab al-Zarqawi's protege, ISIS leader Abu Bakr al-Baghdadi, understands that if the world is going to wait for a committed American response to the ISIS threat in the Middle East, the world is going to have to wait a while. Baghdadi, like Putin and Xi, understands that shock and awe is only a meaningful doctrine if it is backed up by the commitment to use military force--real force, even disproportionate force, the force that makes one a superpower--on the ground.

If war is politics by other means, and we have effectively taken the use of our full military capacity off the table, it is time that we have a real discussion about the implications of this for our foreign policy and how we engage in the world. So far, Congress has been unwilling to seriously engage the question of where we go from here, which the Senate made clear when it refused to hold a debate on launching military strikes against ISIS.

The cornerstone of American foreign policy since the end of the Second World War has been the deployment and implicit threat of disproportionate military capacity. But now the veil has been lifted and the world knows that the days of shock and awe are behind us. In our political discourse we continue to posture as though nothing has changed. But we are only fooling ourselves, our adversaries have already figured it out.


Friday, August 01, 2014

The futile pleas of John Kerry.

"We have urged them, implored them to use their influence to do whatever they can to get that soldier returned. Absent that, the risk of this continuing to escalate, leading to further loss of life is very high.”

So spoke a State Department official regarding John Kerry's calls to Turkish and Qatari leaders. But one has to wonder to what end. The Qataris, in particular--who never met a radical Islamist group they did not like--fully understand the value of the abduction of a soldier to Hamas, and will do little or nothing, regardless of Kerry's pleas.

Nor would a return of the soldier have the effect that Kerry imagines. If anything, the abduction itself will only steel the resolve of Israeli leaders, and the vast majority of Israelis themselves who now support the determination of their government to destroy the Hamas tunnel network. It is the abduction itself that emphasizes the risk to individual Israelis of the Hamas tunnels that are exactly designed to create a new threat of abduction and attacks within Israel proper. The return of the soldier will not mitigate the psychological impact of the abduction itself.

Like John Kerry, many American observers seem to bend over backward to not acknowledge the central premise of Hamas strategy. Media reports describing Israeli attacks on a school or a hospital leave a listener wondering at its abject cruelty. Democrat Hillary Clinton suggested that Hamas puts missiles in schools because Gaza is so small, suggesting there is not enough room for them elsewhere. Republican Joe Scarborough raged against Israel attacking a school, never questioning whether there was a reason for targeting the school other than to unleash carnage on the local population seeking shelter there. There is a better way, he states bluntly, but he does not suggest what that might be.

Like the abduction of the soldier, which Hamas hopes will draw Israel deeper into a land war on its soil, each Hamas tactic is designed primarily around the Israeli response it will engender. Hamas places missiles in schools precisely because when Israel strikes to destroy the missiles, it will produce images of death and devastation that will be broadcast worldwide. Hamas places the entrance to tunnels into Israel beneath hospitals and mosques for the same reason. It may be a general principle of the laws of war that using civilian populations as shields against attack is a war crime, and that civilian deaths that result from attacks on military assets placed deliberately within civilian areas are the responsibility of the party that put the civilians at risk. Yet this is central to Hamas strategy, and the resulting outrage across the world is evidence that legal principles have little salience in the battle for the hearts and minds of the world audience.

And the Hamas strategy is working. At a time when Nouri al Maliki and Basher al Assad are dropping barrel bombs on civilian villages, at a time ISIS has expelled the entire Christian population of Mosel under threat of beheading--and in some areas reportedly implemented a policy of forced clitorectomies--it is the actions of Israel in Gaza that draws protesters into the street in cities across Europe. While the Shi'a and Sunni are massacring each other in far greater numbers, can it really be that the outrage of the world is only peaked when it is Jews who are killing Arabs? How can it be that in a Middle East that has erupted in turmoil, it is only Israel's war with Hamas that the United Nations Human Rights Council has decided should be subject to a war crimes inquiry for “indiscriminate attacks on civilians.”

Last week, the United Nations made a mockery of itself and that decision. When a UN agency found that two of its schools were being used as missile bunkers by Hamas--schools adjacent to facilities for displaced Palestinians--the UN agency did not demand that the missiles be destroyed, or perhaps taken away by an international agency, but rather that they be removed from the school by Hamas. Thus, within the same week, the UN delivered back to Hamas missiles whose only conceivable use is for firing at civilian populations in Israel, thereby becoming an active co-conspirator in exactly the type of war crime it announced that it is seeking to investigate. 

It is a terrible and ugly libel to suggest that Hamas' actions are somehow evidence that Palestinian mothers and fathers love their children less than do any other parents. This point was argued vehemently by an Al Jazeera op-ed in the wake of an earlier Hamas war, and indeed to make such an argument is to deny the basic humanity of the victims of missile strikes in Gaza. The author scoffed at the words of Golda Meir to Anwar El Sadat as they moved toward a peace accord--"We can forgive you for killing our sons, but we will never forgive you for making us kill yours"--as a thinly veiled attempt to wrap the devastation Israel inflicts in a veil of moral piety.

But for all the author's moral outrage--outrage that is mirrored now across the world--he declined to address the central charge that has been heard repeatedly over the years: How can Palestinian parents continue to support leaders within their community who would deliberately use their children as human shields? The fact that this Hamas war was provoked more to elevate Hamas' own standing than to achieve any concrete results--beyond lifting an economic isolation that Hamas itself provoked--makes the question of Palestinian passivity in this regard all the more troubling. There is nothing new about Hamas' tactics, and its leaders have been upfront about their willingness to sacrifice Palestinian children--along with the rest of the civilian population--in pursuit of their own strategic goals. Even as we watch image after image of stricken Palestinians mourning their dead children, we hear the corresponding words of a Hamas official: "What are 200 martyrs compared with lifting the siege?" Indeed, according to a paper in the Journal of Palestine Studies, Hamas--the elected government of Palestinians in Gaza--willfully sacrificed more that 160 Gazan children before any fighting in the digging of the tunnels themselves.

Within the progressive Jewish world--where the anguish expressed in Golda Meir's words is deeply felt--there is always an outcry when Israeli bombs kill Palestinian civilians, both out of moral outrage for the death and destruction and because of the ultimate bankruptcy of an Israeli strategy for which there is no endgame. But with each successive conflict, as Hamas missiles reach deeper into the country and the tunnels are deeper and longer, those voices become less vocal. While for some the broader conflicts in the region have emphasized the importance of pressuring Israel to remove settlements from confiscated Palestinian lands and live within its internationally accepted borders, for others the emergence of ISIS has only emphasized the long history of conflicts in the region and made the Hamas commitment to the destruction of Israel the sine qua non of the conflict. It is neither a metaphor nor a bargaining chip. 

It is hard for many to accept the implications of that stance, but with each war Hamas aids our understanding and acceptance of their commitment. Indeed, Hamas has achieved what Bibi Netanyahu could not: it has forced progressive Jews to understand, if not accept, the logic of Israeli policies that they have long fought. Progressive Jews might have objected to Israel blocking the shipments of building materials and concrete into Gaza, but in this war the world has seen the complex network of tunnels built with an estimated six hundred thousand tons of concrete that we were told was urgently needed for schools and hospitals that were never built. Progressive Jews might have objected that Israeli was needlessly undermining Gaza economic development by preventing the development of a Gaza port, but the vast store of missiles is evidence that the boarded ships found to be filled with armaments intended to be used to kill Israelis were but the tip of the iceberg. Thus, the voices on the Jewish left have become muted.

John Kerry hopes that the growing destruction might have brought a moment of greater clarity where each side would be looking for a reason to stand down. But instead, the cunning of Hamas strategy is evident as more of its constituents are killed or maimed, even as it claims victory over the forces of the occupation. With each such claim--and now with the apparent abduction of a soldier--Hamas only confirms the belief on the part of Israeli leaders--and Hamas antagonists in Egypt and Saudi Arabia as well--that the war has not yet reached is necessary political conclusion. While Kerry pleas for Hamas to undo its latest provocation, it is apparent that neither side is listening, nor willing to stand down. Israel and Hamas are engaged in a battle that each believes can only end with Hamas forcing Israel and Egypt to yield to its terms, or being destroyed as a political force. Unless, of course, the Palestinians of Gaza themselves finally stand up and demand an end to Hamas' leadership, which has done so much to destroy their community.


Tuesday, July 08, 2014

The return of the Sith Lord.

"We stand at a critical moment in the life of our nation. The policies of the last six years have left America diminished and weakened. Our enemies no longer fear us. Our allies no longer trust us... Threats to America’s security are on the rise."

Dick Cheney is back. He is not running for anything, he assured Charlie Rose, so he is free to speak his mind. After six years of the Obama presidency, Cheney sees America's power and prestige declining across the globe, and he wants to do something about it. He has created the Alliance for a Strong America.

This is not new for Cheney. Last time a Democrat was in his second term, Cheney was a signatory in the founding of the Project for the New American Century, the seminal organization created to promote the neoconservative agenda in foreign policy. Both organizations were created in the second term of Democrat Presidents. Both organizations sought to spearhead the promotion of American power and leadership in the world. Both sought to build support for rebuilding American military power.

But Cheney is no longer mincing words and has cast aside the "Neo" label that connoted a commitment to the promotion of economic and political liberty. Cheney never really put his heart and soul into the neoconservative ideology. Spreading "political liberty" and bringing democracy to the Middle East might have been important in the minds of Paul Wolfowitz and Bill Kristol, but never for Cheney. For him, the democracy rhetoric was always a red herring. It may have been useful as a rationale for removing Saddam Hussein from power, but social and political reform was never the point. Cheney was always more Neo-Maoist than Neo-Conservative: forget ideology, power is about power.

Dick Cheney shares the concerns of our "friends" that America is turning away from its historic relationships in the region. Cheney's friends--our guys, to use his jocular rhetoric--are the Gulf monarchies. "Our guys" are the Saudis, whose Wahhabi partners have long been proselytizers of the most extremist branch of Sunni Islam and the lead funders of modern terrorist movements. 

But Americans are no longer so sure who our friends are, as it was our guys who funded the Saudi terrorists responsible for the 9/11 attacks. In time, we have come to grasp the complexity of the region, the depth of the animosity for the west--and for America in particular--and the duplicity of the Saudi game.

What we do know is that Cheney took America to war once before. He blithely assured us of the dangers we faced and who was behind them, all the while assuring us that we had friends in the region that would rally to our side. Over the decade of war that ensued, we learned the hard way that there are deep historical roots to the conflicts there, and we have to think long and hard when we take sides. Friendship in the Middle East is transactional, and it not as simple as the aphorism "the enemy of our enemy is our friend" might suggest.

No doubt many Americans would agree with Cheney that our policies seems to lack coherence. In Iraq, the US and Iran are now effectively allied in opposition to the Sunni ISIS insurgency. While in Syria, where the Iranians are fighting alongside the Shi'a allied Assad regime, the US is determinedly on the other side, allied with the Syrian opposition and tacitly with their Sunni jihadist allies. Yet even as he decries that incoherence, Cheney suggested to Charlie Rose that although Iran is our mortal enemy, perhaps it is time to switch sides in Syria and consider that Assad may not be the worst threat after all. 

In his broadside against President Obama, Dick Cheney fails to grasp the central irony of his situation. Cheney wants us to respond to his cries of "fire," but does not understand that all we see when he speaks is the arsonist. Speaking to Charlie Rose, Cheney admonished those fixated on how we got into Iraq and, despite repeated prodding, he refuses to amend or apologize for a single word of an historical record on his watch that has been so deeply contradicted. Even as he scorns the President in a manner never seen before by one administration toward a successor, Cheney is a man with no sense of accountability for his own actions and his impact on the world around him.

The debate that led up to the Senate war resolution, like the campaign to build public support for war, was built on a deliberate campaign of misinformation. That debate laid the groundwork for a deepening mistrust across the political spectrum of the use of intelligence that sowed the seeds for the Snowden affair and the elevation of Snowden to heroic status on the right and the left. The residue of the lies and dissembling in the run-up to the Iraq war is the hallmark legacy of Cheney's Vice Presidency. The poisoning of the public square and the political climate change it helped to engender has contributed to declining faith in the ability of our government to honestly deal with problems that we face at home and undermined the credibility of our efforts to promote democracy abroad.

Cheney demands that we heed his warnings, but evinces no awareness of why his credibility is suspect, or why Americans might feel burned for having trusted his words and followed his lead before. He is the poster child for the lies and duplicity of an era, the effects of which continue to ripple forward. Republicans and Democrats alike would rather Cheney just go away. He has become a parody of himself, and if America is at risk, the last way to get Americans to hear that is for Dick Cheney to tell them.  He simply fails to recognize that the man he scorns in the White House came to office not because of that hope and change thing, but because Americans had been lied to by their leaders who took the nation to war, and they wanted out. Dick Cheney may have nothing but contempt for Barack Obama, but the irony is that Cheney is one of the reasons Obama was elected.

Senator Arthur Vandenberg famously observed that our politics stop at the waters’ edge, that foreign policy was the realm of national consensus. If America was to go to war, the nation had to be of one voice and to understand and believe in the cause. Perhaps Vietnam marked the end of that national consensus, but the manipulation of information in the promotion of war in Iraq, in order to steep public opinion and stifle democratic debate, is a legacy for which Cheney bears responsibility. All of Cheney’s words now are colored by that poisoned discourse, which contributed so much to what now remains a deeply damaged nation.

Monday, June 23, 2014

The sanctity of borders.

Watching Nigeria play Bosnia and Herzegovina in the World Cup last week provided a context for thinking about the Iraq civil war. Over the course of the 20th century, both countries struggled with issues of national sovereignty, governance and inter-ethnic strife. Like Syria and Iraq, Nigeria's modern borders were established by colonial powers in a manner that divided ethnic groups in to multiple nations, and similarly combined myriad groups into a single polity and declared them a nation. Like Syria and Iraq, both Nigeria and Bosnia and Herzegovina suffered inter-ethnic and sectarian conflicts in which hundreds of thousands died. And like Syria and Iraq, Bosnia existed within the Ottoman Empire -- the Sunni Islamic caliphate that lasted over 600 years -- before becoming part of the Austro-Hungarian Empire and then finally Yugoslavia.

Noted Syria expert Joshua Landis suggested recently that President Obama stay out of an Iraq conflict that he sees as rooted in the breakup of the Ottoman empire and the imposition artificial borders by colonial powers that have been under stress for "more than a century." Implied in Landis's comments is the notion that any ultimate resolution to the conflict will lie in a redrawing of national borders -- and even a reconsideration of the concept of nationhood -- in the Middle East.

Debates over the proper acronym for the Iraq insurgent group ISIS reflect the question of borders and national identity. ISIS, or the Islamic State of Iraq and Syria, should probably be referred to as ISIL, the Islamic State of Iraq and the Levant, as the use of the term Levant better reflects the group's ambitions. The Levant generally describes the area of the Middle East within the Ottoman Empire stretching down from southern Turkey to northern Egypt, and from the Mediterranean east through Iraq. To be Levantine is to have a regional identity rather than a national one, and that definition is consistent with the regional aspirations of ISIS that extend to Syria, Lebanon, Jordan and Israel, along with Iraq.

The question of national identity has long been a challenge in Iraq. From the beginning of the Iraq War, dividing Iraq into three states -- Shi'a in the south, Sunni in the center and Kurdish in the north -- was advocated by those including then-Senate Committee on Foreign Relations Chair Joe Biden as a solution to the inherently unstable nature of an Iraq state that was the fictional creation of the French and British colonial offices. Since the overthrow of Saddam Hussein, who was arguably the strongest proponent of a secular Iraqi national identity, the continuing jockeying for power among the three ethnic groups has been a centrifugal force pulling the nation apart. Today, the Iraq civil war is increasingly becoming a conflict between those who believe that there is --or must be -- a nation called Iraq, and those who view Iraq as a transient historical phenomenon with no inherent identity or purpose.

The civil war in Iraq has brought the ironies and tensions of the Syrian civil war into full view. Last week, President Obama announced that the US would send 300 military advisors back into Iraq in support of the Iraqi regime, while he continues to consider airstrikes against ISIS to forestall its advances on the ground. At the same time, Iranian President Hassan Rouhani announced that Iran would send ground forces into Iraq to defend the al-Maliki regime. This confluence of events led to the unlikely notion of American air power being sent into Iraq in support of an Iranian ground offensive.

While US and Iran are each supporting a political resolution that would maintain the integrity of the Iraqi state, the ISIS perspective is fundamentally different. ISIS aspirations are not to redress grievances toward the al-Maliki regime, but rather are rooted in the dreams of Osama bin Laden and Muslim Brotherhood founder Sayyid Qtub to redress the humiliations and perfidy at the hands of the imperial powers and create a new Sunni Islamist caliphate within borders that they alone determine. But unlike Bin Laden's al Qaeda, hidden in the caves of North Waziristan, ISIS now controls an area spanning 360 miles across Syria and Iraq, and is on the brink of reaching into Jordan. With oil fields in Syria and a refinery in Iraq under its control, and a reported $429 million stolen from banks in Mosel, ISIS has territory, assets and gold.

The emerging alliance of the US and Iran reflects a common commitment to maintaining the integrity of the Iraq state. For Iran, the prospect of a victorious ISIS in Iraq would leave it effectively sandwiched between two hostile Sunni regimes, with ISIS to the west, and the nuclear-armed Pakistan to the east. The recognition of this threat, and Iran's memories of the eight-year Iran-Iraq war led by the Baathists now within the ISIS camp, have led Iran to eschew its traditional hostility toward an American presence in the region in favor of advocating for American reengagement.

For Americans, it is hard for many to remember the days post-9/11 when Iranian intelligence worked in concert with the Americans in pursuit of their common Sunni jihadist enemies. In the context of faltering talks on the nuclear issue it is hard to imagine that even a tacit alliance would be conceivable. But it is becoming increasingly apparent that America's paramount national security interest in the Iraq conflict is no longer about its neoconservative democratization project, or even about oil. Rather it is about the maintenance of international order, the effectiveness of international institutions regulating and moderating disputes between nations, and the sanctity of borders.

Over the past two weeks, one has increasingly heard the argument that the endgame will be the breakup of Iraq into three states along the lines that Biden and Gelb imagined a decade ago. While this approach may have an appeal for those seeking an answer to a seemingly intractable problem, it is problematic as a regional solution. For its part, Iran would still find itself with a new, hostile ISIS controlled state along its western border. For Turkey, the regional power and NATO member state bordering Syria and Iraq, the creation of an independent Kurdish state in northern Iraq has always been a red line, as the Turks anticipate that it would inevitably lead to demands by Turkey's minority Kurdish populations to secede and join the Kurdish homeland. And breaking up Iraq into sectarian regions would implicitly sanction the notion of a similar break up of Syria into ethic enclaves, and the merging of the Syrian and Iraqi Sunni regions as ISIS claims it has already done.

A partition of Iraq may seem like a logical solution, but sanctioning the redrawing of borders is a slippery slope and a remapping of Iraq could have cascading effects on Syria, Jordan, Iran and Turkey. And once the door is opened to the rewriting of borders, there may be unintended consequences beyond the Middle East. Before the ISIS insurgency captured the headlines, international attention focused on the conflict in Ukraine, where, like Iraq, a disgruntled minority was fighting to secede through armed revolt. One has to imagine that separatists in other regions are paying close attention to the outcome in Iraq, and to any American actions that would lending legitimacy to their own efforts to undermine the sanctity of borders.

Sunday, May 11, 2014

Wag the dog.

Nothing garners presidential approval like a good war. For Vladimir Putin, the Ukraine crisis and the annexation of Crimea have been excellent politics. In the most recent Pew Global Attitudes polling, Russian confidence in their President's performance hit 83%, up 14% from when Pew last checked. Dating back a half century, only two American presidents have reached 80% job approval: George H.W. Bush in the wake of the first Gulf War in February 1991, and his son W. a decade later when he stood in the rubble of the World Trade Center in September 2001.

Chinese President Xi Jingping has similarly used aggressive moves against China's neighbors to amp up nationalist fervor. China has antagonized Vietnam and the Philippines as it has broadened its resource claims over the South China Sea, and, most notably, Xi has used international diplomatic settings to play the Japan card--admonishing the Japanese in numerous settings for lack of remorse for inflicting 35 million casualties on the Chinese during the years leading up to WWII.

Xi and Putin share basic tenets. Putin's migration of Russia to a "controlled" democracy mirrors the principles of the Chinese Communist Party in his opposition to multi-party democracy, independent media and civil liberties. Now both men are taking a turn toward nationalism as they confront internal threats to their leadership. Both countries are facing a slowdown in economic growth that has been the cornerstone of popular support over the past decade, and both are seeing increasing public anger over corruption at the highest levels of government.

The risk Xi and Putin face is not simply about the prospect of public outrage over corruption--after all, corruption in both countries must be a long-accepted reality--but rather the prospect that slowing economic growth together with increasing visibility about the depth of corruption will magnify popular discontent--as was the case in Ukraine. After all, it was not venality that brought down Ukrainian President Yanukovych, but the toxic combination of being viewed as venal and ineffectual.

Kleptocracy--rule by thieves and crooks--has at long last emerged as a threat to the regimes in Russia and China. According to a State Department cable leaked on Wikileaks, Xi has long believed that systemic corruption within the leading families of the Communist elite is the Achilles heel that could lead to the demise of the regime. Since his installation as President, Xi's has mounted a public anti-corruption campaign, targeting increasingly senior officials in the Chinese Communist Party.

And the numbers are not small. Two years ago, a New York Times series on China's princelings--the children of the leaders of China's revolution--laid out the $2.7 billion accumulated by former Prime Minister Wen Jiabao and his family, and Bloomberg News provided details on billions of dollars accumulated the families of Party leaders, including hundreds of millions of dollars of assets accumulated by Xi Jingping's own family. Then, earlier this year, leaked documents provided details of billions of dollars of funds held by close relatives of China's ruling elite in offshore accounts, along with suggestions that as much as $1 trillion to $4 trillion have left China since 2000. Clearly, with that much money at stake, there has been opposition within the Party to Xi's campaign, and in recent weeks, Xi's two immediate predecessors in the top job--each of whom have been implicated in the scandal--demanded a halt to the anti-corruption campaign.

Like Xi, Vladimir Putin makes a show of approving new anti-corruption and transparency initiatives. Putin has long walked a fine line with respect to the massive corruption in Russian society and the unmatched theft of state assets that occurred at the time of the collapse of the Soviet Union that led to the rise of the Oligarchs. When he succeeded Boris Yeltsin, Putin made a show of cracking down on oligarchs and returning stolen assets to the state. But his has been a carefully managed process--jailing his enemies and carefully laying down the rules of permitted behavior of his friends--and speculation persists about the magnitude of the fortune Putin himself has amassed during his years in power.

Since the end of the Cold War, US foreign policy toward our erstwhile adversaries has been built around a military policy of encirclement and containment, coupled with economic policies promoting free trade and economic integration. The military policy was straightforward. NATO expansion into all of the former Warsaw Pact nations, coupled with partnerships with the former Soviet republics to the south, created a military cordon around Russia from the Baltic Sea to Afghanistan. At the other end of Asia, the US military has maintained airfields and naval facilities from Japan and South Korea in the Sea of Japan at northern end of China's Pacific coast down to Singapore and the Philippines in the South China Sea.

But the military policy of containment was secondary in many respects to the economic policy of integration. The opening up of the Russian and Chinese economies brought with it enthusiasm that free trade and the mutual economic dependency that it engenders would be the key to preventing future conflicts. This notion was popularized by Tom Friedman in The World is Flat as the "Dell Theory of Conflict Prevention," which suggests that "No two countries that are both part of a major global supply chain, like Dell’s, will ever fight a war against each other as long as they are both part of the same global supply chain."

Today, that premise being tested.

Putin's and Xi's actions have undermined critical global relationships and trust, and threaten trading relationships critical to each country's future. In the case of Russia, Vladimir Putin's saber rattling may have worked to great effect to build his domestic popularity, but it has accelerated capital flight, damaged the ruble, and raised real questions about the economic sustainability of the Russian economy. In particular, Putin's demonstrated willingness to use Russia's control over energy supplies as a political weapon will necessarily lead Russia's trading partners in Europe to seek alternative sources of energy supplies and ultimately undermine the competitive position and stability of Russian energy economy.

For its part, Xi's rhetoric has already driven Japanese investment out of China. While some might dismiss disinvestment as of little import to a country with China's currency reserves, the Chinese economy produces little innovation and has relied on Japanese investment as a critical source of innovation and management expertise. But of perhaps even greater significance was China's effort to embargo sales of Chinese strategic minerals to Japan. China's politicization of trade was struck down by the World Trade Organization, and has now left China to grapple with the choice between honoring its own political rhetoric or respecting international trade regimes.

Putin's land grab in Ukraine and China's saber rattling in the Sea of Japan and South China Sea have demonstrated two fundamental flaws in the US post-Cold War strategy combining military containment and free trade. First, the intimidation value of military assets is clearly limited if there are questions--on our part or in the minds of our adversaries--about our willingness to use them. Second, the Dell Theory that was supposed to be the "carrot" that went along with the military "stick" turns out to be a two-edged sword. During the Ukraine crisis, Europe's dependence on Russian natural gas quickly emerged as a limiting factor on the tools available to the West to seek to temper Putin's aggressiveness, and similarly the dependence of the leading industrial economies on Chinese rare earths demonstrates the vulnerability of western economies to what in essence would be Chinese blackmail should the Chinese Communist Party determine--as it has already demonstrated through its dealings with Japan--that the domestic politics trumps the country's larger economic interest.

Despite the appearance that each now seems to hold the upper hand in the local disputes, Russia and China are each in a position of great risk. Both depend enormously on free trade for their economic well-being. Russia now derives 70% of its foreign currency earnings from commodity sales and depends on its energy sector for 50% of its budget, while China's export-driven growth strategy is legendary. While they trumpet their trade agreements with each other, neither offers the other what they now derive through trade with and investment from the rest of the world. On the other hand, many in Europe would welcome greater economic and security incentives to accelerate the migration away from dependence on Russian energy supplies, and China's neighbors have much to gain from redirected Japanese and western investment that is already leaving China.

Interestingly, Pew's data also suggests that the nationalist strategies embraced by Xi and Putin decline in effectiveness with progressively younger age groups. Specifically, Putin's appeal to the Soviet past resonates strongly with older Russians, while alignment with Putin declines with each age cohort. The younger Chinese and Russians are, the more they participate in social media, the more they are likely to be disdainful of the corruption of their leaders, and the more they have at stake in the economic trajectory of their country. This is not unique to those two countries, but is simply the local manifestation of a phase transition that is affecting politics globally.

Right now, it seems unlikely that Xi or Putin will depart from the path they are on out of concern for the longer term impact on their national economies. After all, they have found a formula that is working for them. But the lesson of Ukraine--and the Arab Spring before it--is that leaders can no longer afford to be venal and ineffectual. For his part, Vladimir Putin can do what he chooses and has little to lose. After all, he represents no political party and his only enduring interests are his own. But Xi Jingping is walking a much finer line, and if he chooses his Party over his country as he is appears inclined to do, he may well end up with neither.

Saturday, April 19, 2014

Zbigniew Brzezinki's long game.

According to the Sunday Times, Barack Obama has had it with trying to build a partnership with Vladimir Putin. Like George W. Bush before him, Barack Obama has finally written off Vladimir Putin. There will be no reset of relations. Instead, his administration's focus will be "cutting off [Russia's] economic and political ties to the outside world, limiting its expansionist ambitions in its own neighborhood and effectively making it a pariah state."   

In the same story, Senator Bob Corker of Tennessee, the ranking Republican on the Foreign Relations Committee, expresses his disgust. “They’re playing us. We continue to watch what they’re doing and try to respond to that. But it seems that in doing so, we create a policy that’s always a day late and a dollar short.”

To a degree unmatched since the early days of the Global War on Terror, American pundits and politicians have been marching in lockstep in response to Vladimir Putin's seizure of Crimea and continuing threats to Ukraine. On April 8th, as the Ukraine story continued to unfold, New York Times columnist and foreign affairs maven Tom Friedman summed up the commonly accepted narrative of Russian aggression and American passivity in his op-ed Playing Hockey with Putin:

"Putin doesn’t strike me as a chess player, in geopolitical terms. He prefers hockey, without a referee, so elbowing, tripping and cross-checking are all permitted. Never go to a hockey game with Putin and expect to play by the rules of touch football. The struggle over Ukraine is a hockey game, with no referee. If we’re going to play — we, the Europeans and the pro-Western Ukrainians need to be serious. If we’re not, we need to tell the Ukrainians now: Cut the best deal with Putin that you can." 

Friedman's colleague at the Times, David Herszenhorn, mirrored the President's frustration as he punctuated an article this week about a posting by Russian Prime Minister Dmitri Medvedev on Facebook with an acrid derision that has become commonplace:

"And so began another day of bluster and hyperbole, of the misinformation, exaggerations, conspiracy theories, overheated rhetoric and, occasionally, outright lies about the political crisis in Ukraine that have emanated from the highest echelons of the Kremlin and reverberated on state-controlled Russian television, hour after hour, day after day, week after week."

Fifty years ago, at the height of the Cold War, American foreign policy icon George Kennan described circumstances like these. He suggested how a democracy "becomes victim of its own propaganda. It then tends to attach to its own cause an absolute value which distorts its own vision … Its enemy becomes the embodiment of all evil. Its own side is the center of all virtue."

Kennan describes our susceptibility succinctly. Americans cling tightly to our image of ourselves as a beneficent, if flawed, people in a Manichean world of good guys and bad guys. We prefer not to know too much about the complexities and morally ambiguities of the world as it really is.

Lost in the 24-hour coverage of the Ukrainian crisis has been any attention to the historical context of these events. This should be the job of our leading newspapers, but even the headlines of these stories in the newspaper of record, Playing Hockey with Putin and Herzenhorn's Russia Is Quick to Bend Truth About Ukraine illustrate how shallow our reporting has become.

There is a backstory that suggests an alternative narrative. Indeed, it would be interesting to know what President Obama and his staff are really thinking as they assail Vladimir Putin for his barbaric behavior. Are they really appalled by Putin's conduct, as the reporting suggests, or do they understand it to be a predictable--and predicted--response to America's continuing strategy to undermine Russian power in the region? And is Bob Corker similarly flummoxed by Putin's strategic superiority, or does he share the sense of satisfaction that Zbigniew Brzezinski must feel as Putin flails away in frustration, as America's decades-long campaign to contain and undermine the Russian state continues to play out?

Zbigniew Brzezinski--who first appeared in the public eye as President Jimmy Carter's National Security Advisor--has in many respects been the inheritor of Henry Kissinger's mantle as the most influential member of the American foreign policy establishment. His life's work has been animated by his enduring hostility to the Russian state, and even as the pundits and politicians frame Ukraine as a failure of western diplomacy and strategy, one can see in it instead the success of the Brzezinski doctrine.

Brzezinski was one of the architects of the expansion of NATO in the wake of the end of the Cold War to include all of the former members of the Warsaw Pact. The expansion of NATO, with the ultimate goal of including Ukraine, was part of a strategy of exerting steadily increasing economic and political pressure on the Russian state. Brzezinski laid out his strategic perspective his 1998 book The Grand Chessboard: American Primacy and Its Geostrategic Imperatives, and his ambitions to contain and ultimately break up the Russian state are summed up in his article A Geostrategy for Eurasia.

At the time that the NATO was expanded to bring in the former Warsaw Pact states, George Kennan expressed his belief that the aggressive expansion of NATO and a hostile policy of encirclement would backfire, and ultimately lead us to the point at which we have now arrived.

''I think it is the beginning of a new cold war... I think the Russians will gradually react quite adversely and it will affect their policies. I think it is a tragic mistake. There was no reason for this whatsoever. No one was threatening anybody else. This expansion would make the Founding Fathers of this country turn over in their graves. We have signed up to protect a whole series of countries, even though we have neither the resources nor the intention to do so in any serious way. [NATO expansion] was simply a light-hearted action by a Senate that has no real interest in foreign affairs.''

But where Kennan saw increasing risks of confrontation, Brzezinski saw opportunity. Brzezinski's policy objective was the neutering of Russian ambitions and assuring American dominion in Eurasia. He did not give deference to Russia's historic paranoia as Kennan counseled, instead his strategy of continued pressure was designed to force Russian leaders to make choices between alternative courses of action, any of which would work to America's advantage.

The Soviet invasion of Afghanistan in 1979 provides an example of Brzezinski's strategic approach. Back in 1980, we all knew that the U.S. boycotted the 1980 Olympics to protest the Soviet invasion of Afghanistan. We knew this because Jimmy Carter told us so on national television, and his explanation went largely unchallenged in the media. And we all came to know that we began our support for the Islamist mujahedeen--who would ultimately defeat the Red Army--in response to the Soviet invasion. We know this because we saw Charlie Wilson’s War. And that rendering of history has largely gone unchallenged in the media.

Only years later did we learn that Jimmy Carter signed the covert action directive initiating support for the Afghan mujahedeen on July 3, 1979, six months before the Soviet invasion. When the Red Army invaded, the Soviet leadership claimed that they were entering Afghanistan to defend the existing Afghan government against a covert war initiated by the United States. The Carter administration adamantly denied the Soviet claims, and the Soviet complaints were ridiculed in the national media--like Medvedev's words this week--as nothing more than self-serving propaganda. Of course we had to respond to Soviet aggression, suggested Tim Russert on NBC's Meet the Press, "We had no choice."

Except, as it turns out, it would appear that the Soviet claims were true.

On the day that Carter approved the CIA intervention, National Security Advisor Brzezinski wrote to the President“This is our chance to give Russia its Vietnam.” Or, as he explained in a 1998 interview, U.S. action in Afghanistan was designed to lure the Red Army into a war that would bleed the Soviet Union. At worst, if the Soviets didn't take the bait, the strategy still offered the prospect of overthrowing the Afghan Communist regime:

"According to the official version of the story, the CIA began to assist mujahedeen in the year 1980, that is, after the invasion of the Soviet army against Afghanistan on December 24, 1979. But the truth that remained secret until today is quite different: it was on July 3, 1979 that President Carter signed his first order on the secret assistance to Kabul’s pro-Soviet regime opponents. That day I wrote a memorandum to the President in which I told him that that assistance would cause the Soviet intervention (...) [W]e did not force the Russian intervention, we just, conscientiously, increase the intervention possibilities."

In subsequent years, Jimmy Carter asserted that it was definitely "not his intention" to provoke the Soviet invasion, and perhaps one can take Jimmy Carter's impassioned outrage at the Soviet invasion at face value. But it is now a matter of historical record that his covert action directive in mid-1979 was undertaken--at least in the view of his National Security Advisor--with an eye toward provoking the Soviets to respond as they did.

The fingerprints of the Brzezinski approach are evident in Ukraine today. Since the fall of the Soviet Union--after that brief moment of white shoe naiveté when George H.W. Bush and James Baker gave Mikhail Gorbachev their word that America would not push NATO "one inch" closer to the Russian border--our policy of encirclement was ratcheted up. Over the course of the decade following the Bush/Baker "commitment" to Gorbachev, all of the Warsaw Pact countries were brought into NATO, and American military facilities were developed in Azerbaijan, Kyrgyzstan, Uzbekistan, and Kazakstan. By the time the dust settled, America had formed a ring of military facilities around the western and southern perimeter of the Russian landmass--from the Baltic Sea to the Chinese border, with the exception of Iran--abrogated the Anti-Ballistic Missile Treaty, and installed a forward deployed "missile defense" system.

The post-Cold War strategy of encirclement was more aggressive in design than simple containment. America's goal, in Brzezinski's words, was to "shape a political context that is congenial to Russia's assimilation into a larger framework of European cooperation." That is to say, Russia would be pushed toward the right choice--democratization and decentralization--and pay a price if it chose poorly. It mirrored Jimmy Carter's covert action in Afghanistan, in that it anticipated the different ways the Russians might respond. On the one hand, steadily tightening a military noose around Russia--ultimately to include Ukraine and Georgia--would constrain its imperial ambitions, the integration of democracies along the Russian periphery into the European community would push Russia toward political and economic reform. On the other hand, should Russia ultimately push back against the West's broken commitments and military encirclement--as George Kennan predicted--it would demonstrate to the world that Russia continued to harbor imperial ambitions and remained a threat to the rest of the world, justifying punitive measures to further isolate Russia economically and politically. It was a win-win strategy: Either outcome would serve America's interests in the region.

In 2008, Vladimir Putin finally pushed back. The Russia-Georgia War was the precursor to Putin’s actions in Ukraine, as it demonstrated that he was serious about opposing continued encroachment on Russia's "near-abroad." At that moment, even as Georgia's ambitions for closer ties with the West were thwarted, international opinion turned against Russia, just as Brzezinski envisioned. Whatever one might have thought of Putin before the Georgia war, through his actions, in the eyes of the West, he revealed his true colors. He was an unrepentant KGB-bred spook, an emerging despot, a Russian nationalist, and a threat.

Writing in support of Putin's actions in the Russia-Georgia War in 2008, Mikhail Gorbachev expressed his frustration with the manipulation of Russia by the United States and in his anger at American duplicity:

"Russia has long been told to simply accept the facts. Here’s the independence of Kosovo for you. Here’s the abrogation of the Antiballistic Missile Treaty, and the American decision to place missile defenses in neighboring countries. Here’s the unending expansion of NATO. All of these moves have been set against the backdrop of sweet talk about partnership. Why would anyone put up with such a charade?"

Russian President Dmitri Medvedev mirrored Gorbachev frustration in an interview in Der Spiegel the following year.

"After the disappearance of the Warsaw Pact, we were hoping for a higher degree of integration. But what have we received? None of the things that we were assured, namely that NATO would not expand endlessly eastwards and our interests would be continuously taken into consideration. NATO remains a military bloc whose missiles are pointed towards Russian territory."

This was the backstory to Ukraine today, but little of that history has been explored in the media as events in Ukraine have unfolded. In advancing the commonly accepted narrative, Tom Friedman, David Herzenhorn and their compatriots have ignored not only that history, but more specifically the long term American strategy, that has been at work. Putin might be playing hockey, as Friedman suggests, but Brzezinski owns the team.

To those who embrace Brzezinski's strategic perspective, Putin's aggressive actions will only undermine his and Russia's credibility in the world. The impact on the lives of Ukrainians in Kiev and Kharkov and Odessa is not the point, Brzezinski's strategic formulation is designed to enhance American power in the region in the long term, and whether Putin finds a way to pull back or chooses to invade is immaterial. Either choice Putin makes, in Brzezinski's long view, will ultimately serve America's interests, even if a Ukrainian civil war and an energy crisis in Europe have to be part of the price along the way.

My point here is not to assess America’s foreign policies in the world or to embrace Brzezinski's approach. One can believe Jimmy Carter’s intervention in Afghanistan was good or bad, that it was effective realism or unwarranted intervention. One can believe promoting Ukrainian democracy and undermining Russia’s security is a good policy or an unwarranted and dangerous one. But one cannot as Friedman suggests, and the media has trumpeted from the outset, simply raise one’s voice in outrage, and express shock at Russia’s "incredible acts of aggression."

Despite the talk of partnership, the fact is that the United States has consistently pursued aggressive and hostile policies designed to contain Russia, and--if Brzezinski has his way--ultimately see Russia broken up into a confederation of smaller states. Yet, by and large, the American media has bought into the dominant narrative, and ignored the deeper strategy at play. America's core strategy remains intact, and from the Brzezinski perspective everything is on track. Vladimir Putin has not been the master strategist of the media's imagination, the puppetmaster who has outfoxed American at every turn. Instead, he has long been caught in a trap, his actions manipulated in a game of power and strategy that goes back decades and in which he is playing a role, not writing the script.

Sunday, April 13, 2014

The courage of Charles Koch.

Two weeks ago, Charles Koch returned to the pages of the Wall Street Journal to defend himself. One has to wonder if the Journal was the best choice. After all, readers of the Wall Street Journal are probably not the one's attacking him. They are the choir, so to speak.

"I have devoted most of my life to understanding the principles that enable people to improve their lives." He began. "Unfortunately, the fundamental concepts of dignity, respect, equality before the law and personal freedom are under attack by the nation's own government. That's why, if we want to restore a free society and create greater well-being and opportunity for all Americans, we have no choice but to fight for those principles. I have been doing so for more than 50 years, primarily through educational efforts. It was only in the past decade that I realized the need to also engage in the political process."

Then, not to waste much time, he launched into his own ad hominem assault on those who disrespect him and attack is character on an (almost) daily basis. "A truly free society is based on a vision of respect for people and what they value.... The central belief and fatal conceit of the current administration is that you are incapable of running your own life, but those in power are capable of running it for you. This is the essence of big government and collectivism."

For my own part, I did not know I was a collectivist until Wayne Berman told me I was. After all, as a Wharton grad and somewhat of a free market economist. But as is so often the case these days, you are either with us, or you're against us. So I was just a bit taken aback as I was walked into Wayne's office--truly an inner sanctum of Republican power--and he introduced me to one of his business associates. "You should know David, he is a collectivist, like you."

A half century ago, every day on my way to school, we drove past the small, red brick building in Belmont, Massachusetts, that was the home of the John Birch Society. That was in the 1960s, and the John Birch Society did not have a big following in the area, but that was not necessarily the case in my own family. My maternal grandfather, Bob Byfield, was an acolyte of William F. Buckley, and as such was a fellow traveler of sorts with the Birchers.

Wayne's comment took me back. Collectivism, totalitarianism, and communism. These were the central enemies of America that my Grandfather wrote about. Now the enemy was inside the tent, and it was me. Collectivist is no insignificant label, it is a moral slur. You are morally bankrupt, and you are my sworn enemy. You are not just un-American, you are anti-American.

Thus, the irony of Koch's response. "Instead of encouraging free and open debate," he bemoans, "collectivists strive to discredit and intimidate opponents. They engage in character assassination." Take that, you totalitarian commie Nazi.

The fatal conceit of Charles Koch's defense of himself is that he uses the term fatal conceit at all. It is a phrase that reeks of philosophical, intellectual arrogance, that shuts off the free and open debate that Koch suggests he so admires. There has been no free and open debate in our politics since the advent of the Tea Party. I am not suggesting that Koch or the Tea Party ended free and open debate, but they most certainly have not espoused it as a value, as Koch suggests.

"Rather than try to understand my vision for a free society..." Koch goes on, "Our critics would have you believe we're "un-American" and trying to "rig the system." Rig the system, sure. Un-American? Not so much. Rigging the system is why we have lobbyists, it is why we have K Street. Our First Amendment right to petition Congress to redress grievances has morphed into the right to petition Congress to grant us special favors and smite down our enemies.

Koch's vision of a free society is clear. It is not that complicated. And I understand the perspective that the rules and practices of more regulated society undermine the values and freedom that he asserts as higher order values. In that world view, unemployment insurance, minimum wages and other income support programs undermine the survivalist imperative that keeps poor inner city families in Los Angeles from moving to the central valley to do the agricultural labor work now done by migrant laborers. I understand that he believes that the children of those families would have a stronger desire to get an education to improve their lot in life, restoring the work ethic that Koch sees having been lost.

I understand Friedman's principles of how market forces can winnow out failing banks, companies that make bad cars. All of that. And as Bob Byfield's grandson, I have read The Road to Serfdom. Really, back in the old country, my other grandfather's forebears were probably serfs.

Koch suggests at the outset he has devoted his life to understanding the principles that enable people to improve their lives, but along the way he has forgotten that these are just theories. I understand the philosophical roots and economic theories that underpin his world view, but I do not agree with them. That does not make me a collectivist, a totalitarian or a communist, just one citizen in a free democracy who disagrees with his perspective, and opposes his conclusions.

As much as Koch imagines himself a herald of liberty and a "free society," his politics have been just one more uninspiring assault on the poor and the middle class. And that is Koch's Achilles heal. Robert Welch, a founder of the John Birch Society along with Charles Koch's father Fred, is widely quoted as having said that "both the U.S. and Soviet governments are controlled by the same furtive conspiratorial cabal of internationalists, greedy bankers, and corrupt politicians." When Charles Koch describes his 50 years of advocacy work, his words suggest that he has continued down this path.

A furtive conspiratorial cabal of internationalists, greedy bankers, and corrupt politicians. Who better to have brought us NAFTA, bank bailouts and the massive corruption of political campaign finance?

Writing in the Wall Street Journal in early 2011, Charles Koch emphasized this theme.

"Government spending on business only aggravates the problem. Too many businesses have successfully lobbied for special favors and treatment by seeking mandates for their products, subsidies (in the form of cash payments from the government), and regulations or tariffs to keep more efficient competitors at bay. Crony capitalism is much easier than competing in an open market. But it erodes our overall standard of living and stifles entrepreneurs by rewarding the politically favored rather than those who provide what consumers want."

He reiterated this view in his recent piece.

"Far from trying to rig the system, I have spent decades opposing cronyism and all political favors, including mandates, subsidies and protective tariffs—even when we benefit from them. I believe that cronyism is nothing more than welfare for the rich and powerful, and should be abolished... If more businesses (and elected officials) were to embrace a vision of creating real value for people in a principled way, our nation would be far better off—not just today, but for generations to come. I'm dedicated to fighting for that vision. I'm convinced most Americans believe it's worth fighting for, too."

But Americans for Prosperity--the main Koch-funded political organization--has completely disdained these broader, unifying themes, and instead rushed to the vanguard to defend traditional Republican power in the Blue vs. Red political wars. The Kochs appear to be captive of their family history as titans of the far right wing, and seemed incapable of any effort to bring Americans together around real, common interests or values in post-economic collapse America. Early on, the Tea Party and Occupy movements shared common rhetoric around the conspiratorial cabal of internationalists, greedy bankers, and corrupt politicians, but principled hatred of the left made it impossible to seize the moment to create a movement that might bring the left and right together around real, common interests, to take on the entrenched power of the center.

And that is the shame of Charles Koch. He may believe his own words, but he has not acted on them. He claims in his writing to see two broad areas of abuses of government. One area includes those programs such as Medicare, Social Security, healthcare and public pensions that by and large support Americans who are far less well of than he and his family. The other area includes the corporate welfare and crony capitalism that he alludes to above. But his political agenda has been completely one sided. The full brunt of the Koch political enterprise has been focused on those things that benefit retirees, school teachers and the poor. There may be an occasional nod to too big to fail, but that side of the Koch agenda has been rhetoric alone, and barely that.

That is the true indictment of Charles Koch. Un-American is a slur slung from right at the left. If he feels stung by that label, he should take comfort that it is just someone trying to steal the rhetoric that Birchers and others have used to such effect, for so long. Charles Koch is most definitely American, but unfortunately he has not been as special an American as he imagines. He describes himself as a man standing on and fighting for principles, to be engaged in a great battle for the future of freedom, but in the end his has been a one-sided pursuit of a narrow, partisan agenda.

Charles Koch made a choice to focus his energy on the destruction of income support programs for the poor, the safety net for older Americans and the retirement security of school teachers. Somehow he wants to be applauded for that, even as he has left alone the entrenched infrastructure of crony capitalism and corporate welfare. How does that comport with his claim to stand up for moral principles? Where do the words of Isaiah, St. Augustine and Pope Francis stand relative to Hayak and Schopenhauer the pantheon of philosophers he likes to cite?

If Charles Koch does not like being called names, he should stop calling other people names. If he wants to be respected, he should try respecting others. And if he wants to be admired for seeking to lead America to a higher ground, to a better place, he should try to act on his own words, and not just focus his vaunted war chest on those Americans who are most vulnerable. If he doesn't wanted to be treated like a caricature of himself, he might start by not acting like one.

Alternatively, as a Republican insider who was bemused by Charles Koch's fit of pique reflected, "Anyone who really cares or worries about what others say about them should shut up and sit down. Otherwise fight the fight and deal with it." 

Saturday, April 12, 2014

Crimes and misdemeanors.

When a person or firm makes too much money for too long, it turns heads. And so it was with Steven A. Cohen. Year after year, Cohen's firm, SAC Capital, beat the Street. Big bets, the theory went. Others were not so sure. Big bets generally cut both ways, as many hedge fund managers learned over the years, and even the best in the world, such as John Paulson and Paul Tutor Jones, had their hard times. But such was not the case with Cohen. SAC Capital was the envy of the industry, posting 30% annual returns over an 18-year period.

A pattern has emerged. In the world of finance, there are two observable theories that relate to investment performance. The first is reversion to the mean, which simply suggests that market returns tend normalize over time. The second is that the half-life of proprietary trading strategies is short, which simply suggests that however smart a trader is, others will soon pick up on what they are doing and climb on board, suppressing returns over time. If a firm or individual posts market-beating returns year after year, there are generally three possibilities. One, they really are smarter. Two, they are cheating. Or three, they are lying. John Paulson or George Soros are examples of the first category. The Enron group was the second. Bernie Madoff was the third.

We have seen versions of each of these over the years, but in the moment it can be hard to tell which it is. And those involved may not either. Early on in Michael Milken's career, he was clearly one of the smartest guys in the room. He single handedly created the junk bond industry, and brought new sources of funding to industries that for years had been starved of capital. And he was paid well for his innovation. Only over time did his drive for money and power lead him to cross the line and run afoul of SEC rules.

Steve Cohen was different, apparently. According to a lawsuit filed by his first wife, Cohen funded the creation of SAC Capital from the profits of his first big insider trade, on RCA stock in 1985. When the suit was dismissed, a SAC spokesman suggested that the outcome vindicated Cohen. But a layman's read of the ruling suggests that his wife's claims were denied because the statute of limitations for litigating the purported activities had expired, and the judge never considered the merits of the insider trading claim.

This week, a "remorseful" SAC Capital urged a federal judge to approve a $1.8 billion settlement on charges of insider trading dating back to 1999. To date, Cohen himself has not been convicted of a crime, but he has agreed to close SAC Capital and limit its activities to managing his family's $10 billion investment portfolio.

If one were to believe his scorned first wife, her ex-husband's insider trading activities date back much longer than the period investigated by the SEC, and her claims lead one to wonder if paying a $1.8 billion fine while keeping $10 billion suggests that crime does seem to pay. Cohen, the former Mrs. Cohen would have us believe, might be a really smart guy, but his stellar performance was grounded in illegal activity from the get-go.

A friend in the industry pointed out the problem with the notion that insider trading was only part of Cohen's repertoire. "Once you make that first trade, and realize the outsized returns, it is hard to go back to day trading."

That is the problem as well with high frequency trading (HFT). Michael Lewis has once again explained the arcane to the rest of us in his new book, The Flash Boys, that illuminates the HFT phenomenon. HFT has grown as an industry--a strategy really--since its inception less than a decade ago to now account for more than half of the stock trades in the market. HFT is what it sounds like--lots of very fast trades, where stocks may be bought and then sold in a matter of milliseconds.

HFT has from its inception been the domain of mathematicians and physicists, which led observers to presume that they were in the first category: they were making money because they are that much smarter than the rest of us. But Lewis paints a very different picture: one of an industry corrupted by a pervasive greed that astonishes even the most cynical observer. As detailed by Lewis, the stock exchanges themselves sold--and continue to sell--access to information that allows HFT groups tiny timing advantages that essentially allow them to "front-run," or buy stocks in front of investors and sell them to those investors at a slight markup. In essence, it is a modern day version of the old horse racing wire con. They are invisible intermediaries skimming a tiny bit of money off of every trade. Therefore, Lewis' story leads one to conclude that the gross revenues of the HFT industry literally constitute little more than a tax on the portfolios of the rest of the investor universe.

Lewis points out that even the most sophisticated traders--the SAC Capitals of the world--had no idea that they were being skimmed. When Lewis' book first came out, a hew and cry welled up in the financial media in defense of HFT, the normal instinct of industry participants to protect their industry from the attacks of the liberal media and others. But after a week or so, those protests gave way to industry participants who realized the enormous damage that HFT has done to the integrity of the industry.

The profit opportunity in what has come to be viewed as computerized front-running essentially undermined any broader market benefits that HFT might theoretically have provided. Defenders of HFT argued it brought "liquidity" to the markets. Liquidity--assuring that there will be buyers ready to make a bid whenever a seller wants to get out--is a critical element of effective securities markets. But as quickly became apparent, HFT traders are not providers of liquidity. Rather, their core strategy is built upon getting in the middle of trades that are fairly sure to happen and taking a tiny piece for themselves. If they are providing liquidity, it is only inadvertently, such as when another trader successfully games their system. The other trader might convince the HFT computer that a trade is coming, inducing it to accumulate shares, and then leave the HFT group holding the stock rather than able to turn around and sell it a millisecond later at a profit as intended.

Market observer Jeff Macke emphasized the market manipulation inherent in high frequency trading. "The trading desks of four different major financial institutions posted gains every single day during the first quarter of 2010. The trading desks of JP Morgan, Bank of America, Citigroup and Goldman Sachs combined posted 244 winning trading days against zero losses. Were the playing field truly level, the odds of a firm making profits or losses on any given day would be roughly 50%. The chances of going 61-0 on such a trading field of dreams would be 2.31 quintillion to 1."

The incomparable Tyler Durden of Zerohedge.com provided this chart encapsulating the problem with HFT. This chart may be Greek to some, but it simply suggests that HFT trading firms are incentivized to migrate from less profitable trading activities that offer some social utility toward more profitable activities that offer little or no social utility. We have seen others go down that road before--Milken, Enron and mortgage derivatives are prime examples--and we know exactly where it ends.  But as we have seen time and time again, in the moment it is difficult, if not impossible, for market participants to heed those lessons, to voluntarily pull back before things come to a bad end.

As Steve Cohen retires from public view and leaves open questions once again about whether justice has been served, the long-term implications of the emerging story of high frequency trading are yet to be seen. While this may not seem to many to be as significant a moment as the meltdown of complex derivatives five years ago, it certain respects it is a more troubling scandal. By all appearances, actors across the industry--major banks, the stock exchanges and regulators--willfully conspired to skim money from individual and institutional investors alike, and few, apparently, were able to step back and see the larger picture of corruption suggested by their collective actions, and the manifest disregard for the public whose interests each are there to serve. 

Monday, April 07, 2014

The dreams of Hyman Roth.

As Francis Ford Coppola told the story, casino investor Hyman Roth was celebrating his birthday in Havana with his partners in crime when he regaled a skeptical Michael Corleone with his vision of the future that was at hand. "Here we are, protected, free to make our profits without Kefauver, the goddamn Justice Department and the F.B.I. ninety miles away, in partnership with a friendly government. Ninety miles! It's nothing! Just one small step, looking for a man who wants to be President of the United States, and having the cash to make it possible. Michael, we're bigger than U.S. Steel."

How times change.

This week, billionaire casino investor Sheldon Adelson is living the dream. Gone is the era when a Senator Estes Kefauver investigated the corrupting commingling of casino money and politics. Gone is the era when one had to, as in Coppola's story, blackmail a member of Congress to secure their support. Instead, politicians eagerly solicit Adelson's patronage and he can openly use the political clout he has acquired in Congress to advance his global gambling interests.

Adelson emerged in the public eye as a force in Republican politics when he contributed over $20 million to Newt Gingrich's campaign for President early in the 2012 campaign season. By the end of that year, Adelson's contributions in the Presidential election cycle race reached $100 million. As he looks forward to 2016, Adelson's unabashed ambition is--in Roth's words--to find a man who wants to be President and use his cash to make it possible. In Presidential politics today, Adelson is bigger than U.S. Steel. Or Goldman Sachs. Or Koch Industries.

Adelson's clout was on display last weekend at the Republican Jewish Coalition gathering just as the Supreme Court issued its ruling in McCutcheon v. FEC. In its 5-4 ruling, the Court took one more step to strip away limitations on political campaign contributions, as it removed limits on aggregate individual contributions to federal campaigns. The ruling in McCutcheon will not likely change much in terms of the flow of money into political races. According to the Center for Responsive Politics, whose database tracks political contributions, in the 2012 campaign cycle, only 646 people actually hit the aggregate contribution limits that were struck down by McCutcheon. Sheldon Adelson's tens of millions certainly were not affected by the federal limits. Nor were the super PACS or the "dark money" 501(c)4 non-profit groups that can now accept unlimited contributions without disclosing their source.

But in his majority opinion, Chief Justice John Roberts once again derided the legal or public policy basis for campaign spending limits, as he not only affirmed the overriding importance of the First Amendment guarantee of freedom of speech, but was dismissive of the corrupting influence of political money. "Government regulation may not target the general gratitude a candidate may feel toward those who support him or his allies, or the political access such support may afford...Any regulation must instead target what we have called 'quid pro quo' corruption or its appearance." 

Roberts would appear to be either gallingly dishonest or shockingly disingenuous--your choice probably betrays your political leanings--given the juxtaposition of the Court ruling with the sight of Republican Presidential candidates falling all over themselves to garner Mr. Adelman's support and catering their every word to align with his views, and the descriptions of Senator Lindsay Graham and others introducing legislation drafted by Adelman's lobbyists to support Adelman's business interests.

Roberts may be right, and the Adelman situation may not reflect quid pro quo political corruption as the Chief Justice defines it. It may well be that those fawning Presidential aspirants are largely aligned with Adelman's interests, and that as a general matter large contributions to Democrats and Republicans alike follow the commitments of those politicians rather than drive them. I may not see the world that way, but the case can be made--and surely Roberts insists on making it. From Roberts vantage point, Lindsay Graham is more than happy to lead the charge to illegalize online gambling as his expression of gratitude for the support that Adelson has shown him.

Roberts' standard that only a quid pro quo provides evidence of corruption essentially obviates the potential or need for campaign finance reform. After all, a quid pro quo is just another term for a bribe, and, as Roberts has observed, bribery is already illegal. Absent a provable quid pro quo, all of those industry lobbyists with wads of bundled political contributions do not drive public policy, they are simply evidence of a cycle of gratitude that--in Roberts vision of the world--is the mother's milk of politic.

The passing of Charles Keating this week is a reminder of another vision of our world. Keating was a leading man in the savings and loan crisis a quarter of a century ago, when he was the CEO of Lincoln Savings & Loan. Keating's famously contributed $1.3 million to the political campaigns of five members of Congress who in a show of gratitude sought to intervene on his behalf with federal bank regulators. In subsequent testimony before the House Banking Committee, Keating was asked by then Banking Committee Chairman Henry Gonzalez if he had expected something from those members of Congress in return for his $1.3 million. Only in our nation's capital would Keating's response "I would hope so, Congressman" have stunned the audience.

If the average American watching the Keating Five hearings on CNN was stunned, it was only by the honesty and forthrightness of Keating's statement. Of course Charles Keating wanted something for his $1.3 million. Of course the actions by the five members of Congress to support Keating's business were in exchange for his financial support. In what rational universe would it be otherwise, and would Keating be a competent CEO if he did not expect a return on his investment?  This is not a complicated notion. It is the denial of the obvious that strains the imagination.

Gratitude is not the mother's milk of politics. It is money. For Hyman Roth, for Sheldon Adelson, and for the pantheon of players that circulate in our nation's capital, large political contributions are an essential part of transactional relationships that are expected to serve the interests of each party. If that cycle of interests does not constitute corruption in Roberts eyes, if the cycle of contributions and favors is too complex to meet his quid pro quo test, then perhaps there is a need to redefine the term. Any given check written to a political campaign account may not be able to be linked to a specific political action, but that does not mean that the relationship is not corrupt, or more specifically that then entire system has not been corrupted. The public understands this, and the 5-4 ruling in each of these Court decisions only further undermines faith in the integrity of the institution.

Chief Justice John Roberts persists in denying what to the broad swath of the American public is self-evident: Money is corrupting our politics and undermining public confidence in our political institutions. If it is a problem of the definition of corruption, then perhaps he should consider the assessment of Supreme Court Justice Potter Steward when the Court struggled with the definition of pornography. You may not be able to define it, but you know it when you see it.

Friday, April 04, 2014

Confessions on a three dollar donor.

While waiting to get my mind around Vladimir Putin, Bitcoin and High Frequency Trading, I thought I should pass along this contribution from my friend Jay Duret.

Among the categories of wasted cyber ink that I am getting too frequently – really, one would be one too many – are the posts I get from the political people looking for money. I made the mistake – I made the same mistake many times – of donating money to one candidate or another. I am a lawyer; I worked in Government; some friends have run for office; there really was no avoiding it, but in this world no mitzvah goes unpunished.

In fact this punishment is endless, a daily dose of emails that implore and entreat me to fight back and join in and stand firm and show what I stand for (presumably as I am standing firm). I am urged to help take back the House or hold on to the Senate. I am begged to have the back of the President. Barack needs me. And while I might find that hard to accept – I am a helpful person, yes, but he has done pretty well on his own steam - it is harder to discount completely when the message is reinforced by an email from Barack himself! And not one! Many! He sends them all the time. Barack loves to email me, it seems.

There is something frankly weird about getting emails from Barack. I like the man. I voted for him two times. Enthusiastically. I have defended his administration endless times at cocktail parties and dinner table talk-a-thons. But I don’t actually know him. And he couldn’t pick me out from a carload of circus clowns. He certainly has not sought my advice in some of the areas where he could have profited from it. I don’t even have one of those grip and grin photos with him that you can get for the maximum individual donation.

I am not angry about any of that; I don’t see any reason why Barack should be reading my blog (though really, it would be good for him). But then why is he emailing me all the time? It is unsettling. Disconcerting. To see that an email from Barack has arrived. I have no friends named Barack and so I don’t dismiss it on the thought that it is about carpool logistics or a squash match; no, when I get a message from Barack I feel as if I should drop everything: the President is reaching out to me! I am being called on.

But it’s a let down. Every time. He is only asking me to stand firm or take a stand or double down. He asks me to give whatever I can. He asks me to chip in $3, $2 whatever.

I mean, really? The President is asking me to give him three bucks?

I am from the generation, and I have the mindset, that if the President were to ask me to quit my job, move to DC and sleep on a bare mattress for a year to work on a matter of import and do it all for no pay, do it as a volunteer! do it pro bono! – I would be on a flight the next day. What choice would I have? My President has asked me to serve! But an email asking me to “chip in” three bucks? Hmmn, I don’t think so.

Thinking about Barack, I decide to look back and see how frequently he has actually reached out to me. Google of course makes these types of explorations easy and in no time at all I have discovered that Barack has emailed me 22 times since June of 2012. (That isn’t the day that he started to correspond with me; it is roughly when I last had the hard drive on my laptop wiped by some genius at the Apple Store.) If I were to go back further, I am sure that I would have a lot more email from the most powerful man in the world. I can remember specifically that I got an email from Barack the night before his speech in Chicago after he was elected. That was electric. Such a shame that electricity has come to begging for bucks at $3 a pop.

As I look at my Obama emails I discover that Barack appears to have shared my email address with a few of his friends and colleagues. I have emails from Abby Witt, Greg Berlin, Grant Campbell, Brandon English, Devin Driscoll, Michael Bennet, Erin Hannigan, Emmy Ruiz. Jeremy Bird, Ivan Frishberg (really? there is a guy actually called Ivan Frishberg?), Kathy Gasperine, Kaili Lambe, Julianna Smoot, Jordan Kaplan, Jon Carson, Jim Messing, Nico Probst, Neeti Kaur, Mu’Min Najah, Liz Lowery, Lindsay Siler, Sara El-Amine, Sami Rahanim, Rufus Gifford, and Robby Mook. All 25 of those folks sending me the same type of message that Barack has been sending me; all of them asking me to “stand firm” and “chip in” and “do my part”.

I suspect that these are fictitious names, but when I start Googling, they are all out there – all linked in to Linked In, all wikipedia’d up, all on Facebook and Twitter, all apparently actual people, and indeed all pretty damn impressively resumed. Ivan Frishberg is a climate change guy, Sara El-Amine is the National Organizing Director for Organizing for America. The list goes on and on.

I go back to my treasure trove of Obama emails and find it isn’t just Barack and his entourage, There are even more from Barack’s organizations. Organizing for America. Obama for America. Something called the Obama Store. I also find, somewhat to my surprise – that Joe Biden, Michelle Obama and Nancy Pelosi are also counting on me. I know them even less than I know Barack, but like Barack, they are also on a first name basis with me, though each of them refer to me by my formal first name rather than the name (Jay) that people who actually know me tend to use.

If you count all the emails – from Barack, the entourage, the OFA, the other organizations, and the political celebrities – I have gotten an awful lot of emails in the last two years asking me to chip in.  Rather overwhelming that my small dollar contributions to the President have generated this much attention.  Maybe I ought to feel guilty. Maybe I should be chipping in more. But the truth is I don’t feel guilty at all. I feel annoyed. I feel as if there is some fundamental lack of grace in these solicitations. A donation, modest as it may be, ought to buy one some zone of immunity. Maybe not forever. But at least for a while.

I wonder if it is possible to unsubscribe from these emails. At first I didn’t think it was but then I learned the trick. You have to scroll WAY DOWN to the bottom of the email – the key lines are spaced below the bottom of the screen on an iPhone. But if you persist and then look down to the smallest possible typeface, you indeed will find a button that says “click here to unsubscribe”. But this is not like Amazon one-click. Rather clicking unsubscribe takes you to a new page where a video of Michelle Obama starts playing right away, reminding you of the great work done last year, a narrative that doesn’t exactly try to talk you out of unsubscribing, but certainly makes you feel that unsubscribing would be churlish.

The text on the side of the unsubscribe page is more direct. The words read:

"I support the President — I just get too many emails."
That’s what a lot of folks who end up on this page say. 

Having acknowledged your pain, the page goes on and urges you to suck it up – there is an agenda to pursue and if you want the good folks on the Obama team to keep fighting you should stay looped in, but failing that, you should select an option to receive fewer emails, about one a week.  Wow, that puts it into perspective. I think I would be fine with one email a year; limiting it to one a week doesn’t seem like much of a limitation.

I go back to my email history and find that yesterday, March 31, 2014, I received four emails – two from OFA and one each from Obama entourage members Kathy Gasperine and Jon Carson. The day before I had three and the day before two. Wow. That’s a lot of love for three days. I read the eight love letters and found that seven of them asked me to “chip in”. God, they love that line. The only thing new in this batch was that the emails were now asking me for $5, a $2 dollar upsell from the $3 I remembered.

I hovered there on the unsubscribe button. Should I do it? I love Barack. He is my guy. I feel as if my whole identity as a good government, reform, citizen-activist will be somehow destroyed if I click the button. But I did. I unsubscribed. Sorry Barack. I am happy to help, but I just can’t stand this begging.

As soon as I click the button, a new page comes up that confirms that I have been unsubscribed and will be removed from all future mailings. I am about to move on to other business when I notice that there is a big bright red box on the Unsubscribe Confirmation page. And within that box there is a word in all caps:

DONATE. 

I puzzle over it for a minute.

I should have been puzzling over the question of why the web designers thought that one who has been driven to such distraction by the emails that they would navigate themselves to the unsubscribe button would at the same time care to make a parting donation. I mean, seriously, what are they thinking?

But frankly, that thought hardly crossed my mind. What really baffled me was why it said DONATE. Didn’t the designers realize what they wanted to say:

CHIP IN 

How could they be so tone deaf?

                                                    -- Jay Duret