Archives: 05/2009

“They Don’t Have the Money to Pay Us Back”

When they let their guard down, politians can say the most revealing things.  In today’s Wall Street Journal, representatives of local governments in California attacked Governor Schwarnenegger’s plan to borrow $2 billion from local property tax revenues to cover some of the state’s budget shortfalls.  In response, Don Knabe, chairman of the Los Angeles County Board of Supervisiors said, “They’re hijacking our dollars.  They don’t have the money to pay us back.  It’s a joke.” 

Given that California doesn’t have the money to pay back borrowing from its local government, it’s likely they might not be able to pay back borrowing from private investors either.  To solve this problem, we have the Municipal Bond Insurance Enhancement Act, on which the House Financial Services Committee held a hearing this week.  To encourage investors to buy California’s risky debt, the federal government would cover any losses to the investor.  We’re told that the federal government would charge bond-issuing governments insurance premiums to cover any losses, but the federal government’s history of setting rates based on politics rather than risk (have you looked at the health of the National Flood Insurance Program lately?) guarantees that the taxpayer would likely have to cover billions in losses on any guarantee of California’s debt.

E-Verify: The Surveillance Solution

The federal government will keep data about every person submitted to the “E-Verify” background check system for 10 years.

At least that’s my read of the slightly unclear notice describing the “United States Citizenship Immigration Services 009 Compliance Tracking and Monitoring System” in today’s Federal Register. (A second notice exempts this data from many protections of the Privacy Act.)

To make sure that people aren’t abusing E-Verify, the United States Citizenship and Immigration Services Verification Division, Monitoring and Compliance Branch will watch how the system is used. It will look for misuse, such as when a single Social Security Number is submitted to the system many times, which suggests that it is being used fraudulently.

How do you look for this kind of misuse (and others, more clever)? You collect all the data that goes into the system and mine it for patterns consistent with misuse.

The notice purports to limit the range of people whose data will be held in the system, listing “Individuals who are the subject of E-Verify or SAVE verifications and whose employer is subject to compliance activities.” But if the Monitoring Compliance Branch is going to find what it’s looking for, it’s going to look at data about all individuals submitted to E-Verify. “Employer subject to compliance activities” is not a limitation because all employers will be subject to “compliance activities” simply for using the system.

In my paper on electronic employment eligibility verification systems like E-Verify, I wrote how such systems “would add to the data stores throughout the federal government that continually amass information about the lives, livelihoods, activities, and interests of everyone—especially law-abiding citizens.”

It’s in the DNA of E-Verify to facilitate surveillance of every American worker. Today’s Federal Register notice is confirmation of that.

Who’s Going to Buy Your Debt, Mr. President?

The administration’s presumption that America can borrow its way to prosperity has taken a couple of big hits over the last couple days.

First, just as the Third World debt crisis destroyed the belief among international bankers that countries don’t go bankrupt, so is the West’s borrowing binge ending the belief among international investors that the U.S. and other Western nations are safe economic bets.

Reports the Wall Street Journal:

Britain was warned by Standard & Poor’s Ratings Service that it may lose its coveted triple-A credit rating, triggering a drop in U.K. bonds and sparking global fears about the consequences of massive debts being incurred by the U.S. and other major nations as they try to dig out from the economic crisis.

The announcement quickly sent waves across the Atlantic. Investors initially dumped U.K. bonds and the pound, heading for the relative safety of U.S. Treasurys. But within hours, worries about an onslaught of new U.S. bond sales and the security of America’s own triple-A rating drove down the prices of U.S. Treasurys.

The yield of the benchmark U.S. 10-year bond, which moves in the opposite direction to the price, rose by 0.15 percentage point from Wednesday to 3.355%, its highest level in six months.

The relative gloom about the U.K. and the U.S. was apparent Thursday in the market for credit-default swaps, where investors can buy and sell insurance against sovereign defaults. Five years of insurance on $10 million in U.K. debt jumped to around $81,000 a year, from $72,000 earlier in the day. U.S. debt insurance cost the equivalent of $37,500 — in the same range as France at $38,000, and Germany at $35,000.

A shot across the bow of the American ship of state, some analysts have called it.

But shots also were being fired from another direction:  East Asia.  The Chinese are starting to have doubts about Uncle Sam’s creditworthiness.  Reports the New York Times:

Leaders in both Washington and Beijing have been fretting openly about the mutual dependence — some would say codependence — created by China’s vast holdings of United States bonds. But beyond the talk, the relationship is already changing with surprising speed.

China is growing more picky about which American debt it is willing to finance, and is changing laws to make it easier for Chinese companies to invest abroad the billions of dollars they take in each year by exporting to America. For its part, the United States is becoming relatively less dependent on Chinese financing.

Financial statistics released by both countries in recent days show that China paradoxically stepped up its lending to the American government over the winter even as it virtually stopped putting fresh money into dollars.

This combination is possible because China has been exchanging one dollar-denominated asset for another — selling the debt of government-sponsored enterprises like Fannie Mae and Freddie Mac in a hurry to buy Treasuries. While this has been clear for months, new data shows that China is also trading long-term Treasuries for short-term notes, highlighting Beijing’s concerns that inflation will erode the dollar’s value in the long run as America amasses record debt.

The national debt is over $11 trillion.  This year’s deficit will run nearly $2 trillion.  Next year the deficit is projected to be $1.2 trillion, but it undoubtedly will run more.  The administration projects an extra $10 trillion in red ink over the coming decade.

Fannie Mae and Freddie Mac need more money.  The Pension Benefit Guaranty Corporation is in trouble.  The FDIC will need more cash to clean up failed banks.  The effectively nationalized auto companies will soak up more funds.  Then there’s the more than $70 trillion in unfunded Social Security and Medicare liabilities.

But don’t worry, be happy!

Cheney vs. Obama: Tale of the Tape

In case you missed it, President Obama and former Vice President Dick Cheney spoke separately today on terrorism and national security. Like two boxers at a pre-fight press conference, they each touted their strength over their opponent. They espoused deep differences in their views on national counterterrorism strategy.

The Thrilla in Manilla it ain’t. As Gene Healy has pointed out, they agree on a lot more than they admit to. Harvard Law professor and former Bush Office of Legal Counsel head Jack Goldsmith makes the same point at the New Republic. Glenn Greenwald made a similar observation.

However, the areas where they differ are important: torture, closing Guantanamo, criminal prosecution, and messaging. In these key areas, Obama edges out Cheney.

Torture

Cheney:

I was and remain a strong proponent of our enhanced interrogation program. The interrogations were used on hardened terrorists after other efforts failed. They were legal, essential, justified, successful, and the right thing to do.

Obama:

I reject the assertion that these are the most effective means of interrogation. What’s more, they undermine the rule of law. They alienate us in the world. They serve as a recruitment tool for terrorists, and increase the will of our enemies to fight us, while decreasing the will of others to work with America. They risk the lives of our troops by making it less likely that others will surrender to them in battle, and more likely that Americans will be mistreated if they are captured.

Torture is incompatible with our values and our national security interests. When we break our own rules (read: laws) against torture, we erode everyone’s faith that America is the good guy in this global fight.

Torture has been embraced by politicians, but the people who are fighting terrorists on the ground want none of it. As former FBI agent Ali Soufan made clear in Senate hearings last week, it is not an effective interrogation technique. Senior military leaders such as General Petraeus, former CENTCOM commanders Joseph Hoar and Anthony Zinni, and former Commandant of the Marine Corps Charles Krulak all denounce the use of torture.

If we captured Al Qaeda operatives who had tortured one of our soldiers in pursuit of information, we would be prosecuting them. Torture is no different and no more justifiable because we are doing it.

Closing Guantanamo

Cheney:

I think the President will find, upon reflection, that to bring the worst of the worst terrorists inside the United States would be cause for great danger and regret in the years to come.

Obama:

[I]nstead of serving as a tool to counter-terrorism, Guantanamo became a symbol that helped al Qaeda recruit terrorists to its cause. Indeed, the existence of Guantanamo likely created more terrorists around the world than it ever detained.

This is an area where Cheney is disagreeing not just with Obama but with John McCain. We would be having this debate regardless of who won the last Presidential election. Get over it.

The current political climate gives you the impression that we are going to let detainees loose in the Midwest with bus fare and a gift certificate for a free gun at the local sporting goods store. Let’s be realistic about this.

We held hundreds of thousands of prisoners of war in America during World War II. The detainees we have now are not ten feet tall and bulletproof, and federal supermax prisons hold the same perfect record of keeping prisoners inside their walls as the detainment facility in Guantanamo Bay.

Criminal Prosecution

Obama basically said that we will try those we can, release those who we believe pose no future threat, and detain those that fit in neither of the first two categories. That’s not a change in policy and that pesky third category isn’t going away.

Obama and Cheney do have some sharp differences as to the reach of war powers versus criminal prosecution.

Cheney:

And when you hear that there are no more, quote, “enemy combatants,” as there were back in the days of that scary war on terror, at first that sounds like progress. The only problem is that the phrase is gone, but the same assortment of killers and would-be mass murderers are still there.

Obama:

Recently, we prosecuted and received a guilty plea from a detainee - al-Marri - in federal court after years of legal confusion. We are preparing to transfer another detainee to the Southern District of New York, where he will face trial on charges related to the 1998 bombings of our embassies in Kenya and Tanzania - bombings that killed over 200 people.

I have written extensively on al-Marri, the last person to be detained domestically as an enemy combatant. The FBI did everything right when it investigated and indicted this Al Qaeda sleeper agent masquerading as an exchange student, only to have the Bush administration remove those charges in order to preserve the possibility of detaining domestic criminals under wartime powers. This claim of governmental power is a perversion of executive authority that Obama was right to repudiate.

The man being indicted in New York is Ahmed Gailani. If he is convicted for his role in the bombing of American embassies in Kenya and Tanzania, he will join his co-conspirators Wadih El-Hage, Mohammed Odeh, Mohammed al-Owhali, and Khalfan Mohammed in a supermax.

This is also where we hold 1993 World Trade Center bombers Ramzi Yousef, Sheikh Omar Abdel Rahman (the “Blind Sheikh”), Mohammed Salameh, Sayyid Nosair, Mahmud Abouhalima, and Ahmed Ajaj.

Not to mention would-be trans-pacific airline bombers Wali Khan Amin Shah and Abdul Hakim Murad.

Al Qaeda operatives Mohammed Jabarah, Jose Padilla, and Abu Ali will share his mailing address.

Let’s not forget American Taliban Johnny Walker Lindh, Shoe Bomber Richard Reid, Al Qaeda and Hamas financier Mohammed Ali Hassan Al-Moayad, Oregon terrorist training camp organizer Ernest James Ujaama, and would-be Millenium Bomber Ahmed Ressam.

That’s a lot of bad guys. It’s almost like we’re checking names off a list or something.

Messaging

Cheney:

Behind the overwrought reaction to enhanced interrogations is a broader misconception about the threats that still face our country. You can sense the problem in the emergence of euphemisms that strive to put an imaginary distance between the American people and the terrorist enemy. Apparently using the term “war” where terrorists are concerned is starting to feel a bit dated.

Obama: no quote is necessary here. The differences in narrative between Obama and Cheney are clear and woven into what Obama says.

Terrorism is about messaging. America finds herself in the unenviable position of fighting an international terrorist group, Al Qaeda, that is trying to convince local insurgents to join its cause. Calling this a “War on Terror” can create a war on everybody if we use large-scale military solutions for intelligence, law enforcement, and diplomatic problems.

We have to tie every use of force or governmental power to a message: drop leaflets whenever we drop a bomb, hold a press conference whenever we conduct a raid, and publish a court decision whenever we detain someone. Giving the enemy the initiative in messaging gives them the initiative in the big picture.

Conclusion

Once we get past the rhetoric, the differences are few but worth noting. I take Obama in the third round by TKO.