Olmert’s lame-duck epiphany about Palestinian peace

He is a former leader in the rightist Likud Party who for decades staunchly believed that the West Bank and Gaza Strip belonged to the Jewish people and that the territories, along with the Golan Heights, should remain part of Greater Israel forever. Along with former Prime Minister Ariel Sharon, Ehud Olmert gradually came to understand that this was a fantasy. They broke away from Likud and created the centrist Kadima (“Onward”) Party three years ago. Now, as Olmert hands the reins to Tzipi Livni and leaves office amid a corruption scandal, he’s made a series of stunning departure statements that form a swan song of historical importance. Peace advocates, Israeli dreamers, Arab skeptics and U.S. mediators in a future McCain or Obama Administration should read his words carefully and take note.

The political lame duck’s views expressed in interviews and public comments reveal the sweeping reversals that have taken place among some of Israel’s ultra-nationalists. Olmert says Israel should withdraw from “almost all” of the West Bank and Golan Heights. A former mayor of “the undivided capital of the Jewish state,” he now advocates dividing Jerusalem with the Palestinians. He wants to keep some of the Jewish settlements that adjoin Israel’s pre-1967 border but accepts giving the future Palestinian state Israeli territory in a land swap with a “close to 1-to-1-ratio.” “The notion of a Greater Israel no longer exists,” Olmert says, “and anyone who still believes in it is deluding themselves.” [continued…]

Bahrain calls for Middle East bloc to bring together Iran and Israel

Middle Eastern countries should set up a new regional organisation that includes all Arab states as well as Israel, Iran and Turkey, pro-western Bahrain urged yesterday.

The call – which is likely to provoke controversy – came from Sheikh Khalid bin Ahmed al-Khalifa, the Gulf state’s foreign minister. “Why don’t we all sit together even if we have differences and even if we don’t recognise each other?” he told the London-based daily al-Hayat. “Why not become one organisation?

“Aren’t we all members of a global organisation called the United Nations? Why not [come together] on a regional basis? This is the only way to solve our problems. There’s no other way to solve them, now or in 200 years.”

Asked if that should include Israel, he replied: “With Israel, Turkey, Iran and Arab countries. Let them all sit together in one group.” [continued…]

Trio of warlords blamed for surge in Afghanistan violence

The escalating insurgency in Afghanistan is being spearheaded by a trio of warlords who came to prominence in the CIA-backed war to oust the Soviets but who now direct attacks against U.S. forces from havens in Pakistan, according to U.S. military and intelligence officials.

Militant groups led by the three veteran mujahedin are behind a sharp increase this year in the number and sophistication of attacks in Afghanistan and pose a major challenge to President Bush’s hope of stabilizing the country by deploying thousands of additional troops.

Despite a flurry of U.S. airstrikes against their organizations and million-dollar bounties on their heads, the Pashtun chieftains have been able to operate, and even expand their networks, largely unmolested from bases spread along the border with Pakistan. [continued…]

British envoy says mission in Afghanistan is doomed, according to leaked memo

Britain’s Ambassador to Afghanistan has stoked opposition to the allied operation there by reportedly saying that the campaign against the Taleban insurgents would fail and that the best hope was to install an acceptable dictator in Kabul.

Sir Sherard Cowper-Coles, a Foreign Office heavyweight with a reputation for blunt speaking, delivered his bleak assessment of the seven-year Nato campaign in Afghanistan in a briefing with a French diplomat, according to French leaks. However sources in Whitehall said the account was a parody of the British Ambassador’s remarks.

François Fitou, the deputy French Ambassador to Kabul, told President Sarkozy’s office and the Foreign Ministry in a coded cable that Sir Sherard believed that “the current situation is bad; the security situation is getting worse; so is corruption and the Government has lost all trust”. [continued…]

A shake-up at the top of Pakistan’s spy agency

Pakistan may currently enjoy what seems to be a healthy if noisy democracy, but the office of army chief remains the most powerful one in the country — certainly exceeding the effective control of any politician or civilian bureaucrat. And now Pakistan’s army chief, General Ashfaq Kayani, is showing that he is truly in charge of the military — and hence the most powerful man in the country.

Just before midnight on Sept. 29, Kayani replaced the head of Pakistan’s premier intelligence agency and elevated a slew of handpicked generals to key positions in a major shake-up of the military leadership. The most striking appointment is the promotion of Lieut. General Ahmed Shujaa Pasha to head of the Inter-Services Intelligence (ISI), one of the world’s most powerful spy agencies — routinely described, and decried, as a “state within a state.” Pasha, who had headed military operations in the tribal areas, replaces Lieut. General Nadeem Taj, an appointee and relative of recently departed President and ex–army chief Pervez Musharraf, who was infamous for intertwining military and political affairs. [continued…]

Terrorist attacks in Pakistan stir anger at U.S.

For Jamil Asghar, owner of the Bata Shoe Store in Saddar Market, preparations for this year’s Eid-al-Fitr celebrations are being marred by an ever-present sense of danger.

“Look around you,” he says, surveying the crowded middle-class bazaar. “If a bomb went off here, where these innocent people are standing, can you imagine how bad it would be?”

Though unequivocal in his view that terrorists are kaffirs (unbelievers), Asghar also has no doubt where the root cause of the recent increase in suicide bombings and other deadly attacks lies: the United States and its military incursions into Pakistan’s tribal zones. [continued…]

The cost of boots on the ground in Iraq

It takes half a million dollars per year to maintain each sergeant in combat in Iraq. Thanks to a Senate committee inquiry, an authoritative government study finally details the costs of keeping boots on the ground. The Congressional Budget Office (CBO), in its report Contractors’ Support of U.S. Operations in Iraq, compared the costs of maintaining a Blackwater professional armed guard versus the U.S. military providing such services itself. Both came in at about $500,000 per person per year.

News reports of the study have largely focused on the total cost of U.S. contractors. The 190,000 contractors in Iraq and neighboring countries, from cooks to truck drivers, have cost U.S. taxpayers $100 billion from the start of the war through the end of 2008. Overlooked in this media coverage has been the sheer cost per soldier of keeping the army in Iraq. This per-soldier cost is more comprehensible and alarming than the rather abstract aggregate figure. [continued…]

The trickle-up bailout

The theory underlying the bailout plan stalled in Congress is that rescuing the finance industry will restore market stability and that the benefits will eventually trickle down to average Americans. Thus, solving the subprime mortgage crisis has morphed into a much larger challenge: reassembling the architecture of the financial markets, which seemingly requires giving the Treasury secretary nearly a trillion dollars and extraordinary latitude to pick winners and losers.

There is an easier and more politically palatable fix: Pay off all the delinquent mortgages.

The financial crisis is a liquidity crisis, yes, but it is ultimately a product of homeowner failures to pay. Unless this fundamental problem is fixed, we will continue to see — and need to treat — the symptoms. The proposed bailout ignores this. Yet the sum being demanded from taxpayers is almost certainly more than sufficient to pay off all currently delinquent mortgages. [continued…]


The Republican-led defeat of President Bush’s Wall Street bailout plan caused an immediate financial catastrophe: The stock market fell an unprecedented 777.68 points, wiping out, by one estimate, $1.2 trillion in wealth. But the greater and more lasting damage may be to the Republican Party itself.

Percentagewise, the Sept. 29 crash was one-third the size of Black Monday, the stock-market crash of Oct. 19, 1987. As I write, the Dow Jones Industrial Average has risen more than halfway back up (though stock prices remain volatile). It’s still possible to believe that the economy will return to normal in a year or two. For Republicans, though, the events of Sept. 29 could well be remembered as the start of a decades-long exile from power—much as Democrats remember Nov. 4, 1980. [continued…]

The GOP blames the victim

Two weeks ago, I wrote that the breakdown of the nation’s financial industry was undeniably a self-induced injury; that it would finally force conservatives to own up to the wrongheadedness of their deregulatory project; that they couldn’t possibly blame the disaster on any of their traditional bogeymen.

But I had forgotten about conservatives’ extraordinary instincts for blame-evasion. This is a movement, after all, that blandly recasts its greatest idols as traitors once their popularity has crashed; that routinely sloughs off responsibility for . . . well . . . anything since, by its logic, conservatism has never really been tried in the first place. Consider in this respect Mitt Romney’s remarkable speech to the Republican convention a few weeks ago, in which he rallied his party against Washington — a place his party has controlled, to one degree or another, for nearly three decades — by listing the city’s various institutions and crying, “It’s liberal!”

Or consider the way the House Republicans torpedoed the bailout bill a few days ago. The real reason they did it was almost certainly to evade responsibility for an unpopular measure but the announced reason seemed designed to convince the nation’s 7-year-olds — because Nancy Pelosi said something mean. [continued…]

Mainstream economists reconsider globalization

Fifteen years after NAFTA and ten years after the protests against the World Trade Organization in Seattle, economists can now look at the actual results from a host of multilateral free-trade agreements. The results do little to overthrow the basic theoretical argument about comparative advantage–economies do best when they specialize in producing the goods and services they can make most efficiently and trade for those goods outside their specialization–but they have led many economists to be far more skeptical of the actual “free trade” policies that have emerged from Washington over the last several decades. The evidence has forced academics to focus on the distribution of trade’s negative effects, the role trade agreements play in rising inequality, and the failure of trade agreements to deliver the bounty of jobs their advocates predicted. The result is that, while they may still deride protectionism, laissez-faire economists who once sought to keep government from meddling in the market have begun to embrace an unlikely new partner: the welfare state. [continued…]

Can Asia rescue the global economy?

hat change a decade brings. Western bankers and pundits who hectored Asians for poor governance and lack of transparency during the 1997 financial crisis now hope for help from Asia as the hallowed “Anglo-American financial system” implodes.

Asian countries whose currencies and economies collapsed then were not victims of their own monetary or fiscal profligacy. Unlike the US today, their governments did not have large budget deficits, nor did they cause inflation by printing money. Some like Thailand had fixed exchange rates which became overvalued because they were tied to a then-strengthening US dollar, and capital-market liberalization attracted large short-term foreign capital inflow. This “hot money” built up domestic asset bubbles and generated large current account deficits, which attracted currency speculators. Other countries like Indonesia were victims of financial contagion once their neighbors’ currencies crashed.

Since then, many though not all economists have concluded that capital market liberalization and free capital flows in developing countries not only fail the test as an unalloyed good, but are unnecessary and, at worst, pernicious. [continued…]

This economy does not compute

A few weeks ago, it seemed the financial crisis wouldn’t spin completely out of control. The government knew what it was doing — at least the economic experts were saying so — and the Treasury had taken a stand against saving failing firms, letting Lehman Brothers file for bankruptcy. But since then we’ve had the rescue of the insurance giant A.I.G., the arranged sale of failing banks and we’ll soon see, in one form or another, the biggest taxpayer bailout of Wall Street in history. It seems clear that no one really knows what is coming next. Why?

Well, part of the reason is that economists still try to understand markets by using ideas from traditional economics, especially so-called equilibrium theory. This theory views markets as reflecting a balance of forces, and says that market values change only in response to new information — the sudden revelation of problems about a company, for example, or a real change in the housing supply. Markets are otherwise supposed to have no real internal dynamics of their own. Too bad for the theory, things don’t seem to work that way.

Nearly two decades ago, a classic economic study found that of the 50 largest single-day price movements since World War II, most happened on days when there was no significant news, and that news in general seemed to account for only about a third of the overall variance in stock returns. A recent study by some physicists found much the same thing — financial news lacked any clear link with the larger movements of stock values. [continued…]

Lesson from a crisis: when trust vanishes, worry

In 1929, Meyer Mishkin owned a shop in New York that sold silk shirts to workingmen. When the stock market crashed that October, he turned to his son, then a student at City College, and offered a version of this sentiment: It serves those rich scoundrels right.

A year later, as Wall Street’s problems were starting to spill into the broader economy, Mr. Mishkin’s store went out of business. He no longer had enough customers. His son had to go to work to support the family, and Mr. Mishkin never held a steady job again.

Frederic Mishkin — Meyer’s grandson and, until he stepped down a month ago, an ally of Ben Bernanke’s on the Federal Reserve Board — told me this story the other day, and its moral is obvious enough. Many people in Washington fear that the country is starting to spiral into a terrible downturn. And to their horror, they see the public, and many members of Congress, turning into modern-day Meyer Mishkins, more interested in punishing Wall Street than saving the economy.

All of which may be true. But there is good reason for the public’s skepticism. The experts and policy makers who so desperately want to take action have failed to tell a compelling story about why they’re so afraid. [continued…]

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