Speculators, Politicians, and Financial Disasters

Fueled by easy credit, the real-estate market had been rising swiftly for some years. Members of Congress were determined to assure the continuation of that easy credit. Suddenly, the party came to a devastating halt. Defaults multiplied, banks began to fail. Soon the economic troubles spread beyond real estate. Depression stalked the land.

The year was 1836.

The nexus of excess speculation, political mischief, and financial disaster—the same tangle that led to our present economic crisis—has been long and deep. Its nature has changed over the years as Americans have endeavored, with varying success, to learn from the mistakes of the past. But it has always been there, and the commonalities from era to era are stark and stunning. Given the recurrence of these themes over the course of three centuries, there is every reason to believe that similar calamities will beset the system as long as human nature and human action play a role in the workings of markets.

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Let us begin our account of the catastrophic effects of speculative bubbles and political gamesmanship with the collapse of 1836. Thanks to a growing population, prosperity, and the advancing frontier, poorly regulated state banks had been multiplying throughout the 1830’s. In those days, chartered banks issued paper money, called banknotes, backed by their reserves. From 1828 to 1836, the amount in circulation had tripled, from $48 million to $149 million. Bank loans, meanwhile, had almost quadrupled to $525 million. Many of the loans went to finance speculation in real estate.

Much of this easy-credit-induced speculation had been caused, as it happens, by President Andrew Jackson. This was a terrific irony, since Jackson, who served as President from 1829 until 1837, hated speculation, paper money, and banks. His crusade to destroy the Second Bank of the United States, an obsession that led him to withdraw all federal funds from its coffers in 1833, removed the primary source of bank discipline in the United States. Jackson had transferred those federal funds to state banks, thereby enabling their outstanding loans to swell.

The real-estate component of the crisis began to take shape in 1832, when sales by the government of land on the frontier were running about $2.5 million a year. Some of the buyers were prospective settlers, but most were speculators hoping to turn a profit by borrowing most of the money needed and waiting for swiftly-rising values to put them in the black. By 1836, annual land sales totaled $25 million; in the summer of that year, they were running at the astonishing rate of $5 million a month.

While Jackson, who was not economically sophisticated, did not grasp how his own actions had fueled the speculation, he understood perfectly well what was happening. With characteristic if ill-advised decisiveness, he moved to stop it. Since members both of Congress and of his cabinet were personally involved in the speculation, he faced fierce opposition. But in July, as soon as Congress adjourned for the year, Jackson issued an executive order known as the “specie circular.” This forbade the Land Office to accept anything but gold and silver (i.e., specie) in payment for land. Jackson hoped that the move would dampen the speculation, and it did. Unfortunately, it did far more: people began to exchange their banknotes for gold and silver. As the demand for specie soared, the banks called in loans in order to stay liquid.

The result was a credit crunch. Interest rates that had been at 7 percent a year rose to 2 and even 3 percent a month. Weaker, overextended banks began to fail. Bankruptcies spread. Even several state governments found they could not roll over their debts, forcing them into default. By April 1837, a month after Jackson left the presidency, the great New York diarist Philip Hone noted that “the immense fortunes which we heard so much about in the days of speculation have melted like the snows before an April sun.”

The longest depression in American history had set in. Recovery would not begin until 1843. In Charles Dickens’s A Christmas Carol, published that same year, Ebenezer Scrooge worries that a note payable to him in three days might be as worthless as “a mere United States security.”

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Modern standards preclude government officials and members of Congress from the sort of speculation that was rife in the 1830’s. But today’s affinities between Congressmen and lobbyists, affinities fueled by the largess of political-action committees, have produced many of the same consequences.

Consider the savings-and-loan (S&L) debacle of the 1980’s. The crisis, which erupted only two decades ago but seems all but forgotten, was almost entirely the result of a failure of government to regulate effectively. And that was by design. Members of Congress put the protection of their political friends ahead of the interests of the financial system as a whole.

After the disaster of the Great Depression, three types of banks still survived—artifacts of the Democratic party’s Jacksonian antipathy to powerful banks. Commercial banks offered depositors both checking and savings accounts, and made mostly commercial loans. Savings banks offered only savings accounts and specialized in commercial real-estate loans. Savings-and-loan associations (“thrifts”) also offered only savings accounts; their loan portfolios were almost entirely in mortgages for single-family homes.

All this amounted, in effect, to a federally mandated cartel, coddling those already in the banking business and allowing very few new entrants. Between 1945 and 1965, the number of S&L’s remained nearly constant at about 8,000, even as their assets grew more than tenfold from almost $9 billion to over $110 billion. This had something to do with the fact that the rate of interest paid on savings accounts was set by federal law at .25 percent higher than that paid by commercial banks, in order to compensate for the inability of savings banks and S&L’s to offer checking accounts. Savings banks and S&L’s were often called “3-6-3” institutions because they paid 3 percent on deposits, charged 6 percent on loans, and management hit the golf course at 3:00 p.m. on the dot.

These small banks were very well connected. As Democratic Senator David Pryor of Arkansas once explained:

You got to remember that each community has a savings-and-loan; some have two; some have four, and each of them has seven or eight board members. They own the Chevy dealership and the shoe store. And when we saw these people, we said, gosh, these are the people who are building the homes for people, these are the people who represent a dream that has worked in this country.

They were also, of course, the sorts of people whose support politicians most wanted to have—people who donated campaign money and had significant political influence in their localities.

The banking situation remained stable in the two decades after World War II as the Federal Reserve was able to keep interest rates steady and inflation low. But when Lyndon Johnson tried to fund both guns (the Vietnam war) and butter (the Great Society), the cartel began to break down.

If the government’s first priority had been the integrity of the banking system and the safety of deposits, the weakest banks would have been forced to merge with larger, sounder institutions. Most solvent savings banks and S&L’s would then have been transmuted into commercial banks, which were required to have larger amounts of capital and reserves. And some did transmute themselves on their own. But by 1980 there were still well over 4,500 S&L’s in operation, relics of an earlier time.

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Why was the integrity of the banking system not the first priority? Part of the reason lay in the highly fragmented nature of the federal regulatory bureaucracy. A host of agencies—including the Comptroller of the Currency, the Federal Reserve, the FDIC and the FSLIC, state banking authorities, and the Federal Home Loan Bank Board (FHLBB)—oversaw the various forms of banks. Each of these agencies was more dedicated to protecting its own turf than to protecting the banking system as a whole.

Adding to the turmoil was the inflation that took off in the late 1960’s. When the low interest rates that banks were permitted to pay failed to keep pace with inflation, depositors started to look elsewhere for a higher return. Many turned to money-market funds, which were regulated by the Securities and Exchange Commission rather than by the various banking authorities and were not restricted in the rate of interest they could pay. Money began to flow out of savings accounts and into these new funds, in a process known to banking specialists by the sonorous term “disintermediation.”

By 1980, with inflation roaring above 12 percent—the highest in the country’s peacetime history—the banks were bleeding deposits at a prodigious rate. The commercial banks could cope; their deposit base was mostly in checking accounts, which paid no interest, and their lending portfolios were largely made up of short-term loans whose average interest rates could be quickly adjusted, not long-term mortgages at fixed interest. But to the savings banks and S&L’s, disintermediation was a mortal threat.

Rather than taking the political heat and forcing the consolidation of the banking industry into fewer, stronger, and more diversified banks, Washington rushed to the aid of the ailing S&L’s with quick fixes that virtually guaranteed future disaster. First, Congress eliminated the interest-rate caps. Banks could now pay depositors whatever rates they chose. While it was at it, Congress also raised the amount of insurance on deposits, from $40,000 to $100,000 per depositor.

At the same time, the Federal Home Loan Bank Board changed the rules on brokered deposits. Since the 1960’s, brokers had been making, on behalf of their customers, multiple deposits equal to the limit on insurance. This allowed wealthy customers to possess insured bank deposits of any cumulative size—an end-run around the limit that should never have been tolerated in the first place. Realizing that these deposits were “hot money,” likely to chase the highest return, the Home Loan board forbade banks to have more than five percent of their deposit base in such instruments. But in 1980 it eliminated the restriction.

With no limits on interest rates that could be paid and no risk of loss to the customers, the regulators and Congress had created an economic oxymoron: a high-yield, no-risk security. As money flowed in to take advantage of the situation, the various S&L’s competed among themselves to offer higher and higher interest rates. Meanwhile, however, their loan portfolios were still in long-term home mortgages, many yielding low interest.

As a result, they went broke. In 1980 the S&L’s had a collective net worth slightly over $32 billion. By December 1982 that number had shrunk to less than $4 billion.

To remedy the disaster caused by the quick fixes of 1980, more quick fixes were instituted. The FHLBB lowered reserve requirements—the amount of money that banks must keep in highly liquid form, like Treasury notes, in order to meet any demand for withdrawals—from 5 to 3 percent of deposits. “With the proverbial stroke of the pen,” the journalist L.J. Davis wrote, “sick thrifts were instantly returned to a state of ruddy health, while thrifts that only a moment before had been among the dead who walk were now reclassified as merely enfeebled.”

For good measure, the Bank Board changed its accounting rules, allowing the thrifts to show handsome profits when they were, in fact, going bust. It was a case of regulators authorizing the banks they regulated to cook the books. Far worse, the rule that only locals could own an S&L was eliminated. Now anyone could buy a thrift. High-rollers began to move in, delighted to be able to assume the honorific title of “banker.”

And Congress, ever anxious to help the Chevy dealers and shoe-store owners, lifted the limits on what the thrifts themselves could invest in. No longer were they limited to low-interest, long-term, single-family mortgages. Now they could lend up to 70 percent of their portfolios for commercial real-estate ventures and consumer needs. In short, Congress gave the S&L’s permission to become full-service banks without requiring them to hold the capital and reserves of full-service banks.

Now came the turn of state-chartered thrifts, whose managers understandably wanted to enjoy the same freedoms enjoyed by federally-chartered S&L’s. State governments from Albany to Sacramento were obliging. California, which had the largest number of state-chartered S&L’s, allowed them to invest in anything from junk bonds to start-up software companies—in effect, to become venture-capital firms using government-guaranteed money. The consequence, as predictable as the next solar eclipse, was a collapse of the S&L’s en masse. Between 1985 and 1995, over a thousand were shut down by the government or forced to merge. The cost to the public is estimated to have run $160 billion.

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As the sorry tale of the S&L crisis suggests, the road to financial hell is sometimes paved with good intentions. There was nothing malign in attempting to keep these institutions solvent and profitable; they were of long standing, and it seemed a noble exercise to preserve them. Perhaps even more noble, and with consequences that have already proved much more threatening, was the philosophy that would eventually lead the United States into its latest financial crisis—a crisis that begins, and ends, with mortgages.

A mortgage used to stay on the books of the issuing bank until it was paid off, often twenty or thirty years later. This greatly limited the number of mortgages a bank could initiate. In 1938, as part of the New Deal, the federal government established the Federal National Mortgage Association, nicknamed Fannie Mae, to help provide liquidity to the mortgage market.

Fannie Mae purchased mortgages from initiating banks and either held them in its own portfolio or packaged them as mortgage-backed securities to sell to investors. By taking these mortgages off the books of the issuing banks, Fannie Mae allowed the latter to issue new mortgages. Being a government entity and thus backed by the full faith and credit of the United States, it was able to borrow at substantially lower interest rates, earning the money to finance its operations on the difference between the money it borrowed and the interest earned on the mortgages it held.

Together with the GI Bill of 1944, which guaranteed the mortgages issued to veterans, Fannie Mae proved a great success. The number of Americans owning their own homes climbed steadily, from fewer than 15 percent of non-farm families in the 1930’s to nearly 70 percent by the 1980’s. Thus did Fannie Mae and the GI Bill prove to be powerful engines for increasing the size of the middle class.

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It can be argued that 70 percent is about as high a proportion as could, or should, be hoped for in home ownership. Many young people are not ready to buy a home; many old people prefer to rent. Some families move so frequently that home ownership makes no sense. Some people, like Congressman Charlie Rangel of New York, take advantage of local rent-control laws to obtain housing well below market rates, and therefore have no incentive to buy.

And some families simply lack the creditworthiness needed for a bank to be willing to lend them money, even on the security of real property. Perhaps their credit histories are too erratic; perhaps their incomes and net worth are lower than bank standards; or perhaps they lack the means to make a substantial down payment, which by reducing the amount of the mortgage can protect a bank from a downturn in the real-estate market.

But historically there was also a class, made up mostly of American blacks, for whom home ownership was out of reach. Although simple racial prejudice had long been a factor here, it was, ironically, the New Deal that institutionalized discrimination against blacks seeking mortgages. In 1935 the Federal Housing Administration (FHA), established in 1934 to insure home mortgages, asked the Home Owner’s Loan Corporation—another New Deal agency, this one created to help prevent foreclosures—to draw up maps of residential areas according to the risk of lending in them. Affluent suburbs were outlined in blue, less desirable areas in yellow, and the least desirable in red.

The FHA used the maps to decide whether or not to insure a mortgage, which in turn caused banks to avoid the redlined neighborhoods. These tended to be in the inner city and to comprise largely black populations. As most blacks at this time were unable to buy in white neighborhoods, the effect of redlining was largely to exclude even affluent blacks from the mortgage market.

Even after the end of Jim Crow in the 1960’s, the effect of redlining lingered, perhaps more out of habit than of racial prejudice. In 1977, responding to political pressure to abolish the practice, Congress finally passed the Community Reinvestment Act, requiring banks to offer credit throughout their marketing areas and rating them on their compliance. This effectively outlawed redlining.

Then, in 1995, regulations adopted by the Clinton administration took the Community Reinvestment Act to a new level. Instead of forbidding banks to discriminate against blacks and black neighborhoods, the new regulations positively forced banks to seek out such customers and areas. Without saying so, the revised law established quotas for loans to specific neighborhoods, specific income classes, and specific races. It also encouraged community groups to monitor compliance and allowed them to receive fees for marketing loans to target groups.

But the aggressive pursuit of an end to redlining also required the active participation of Fannie Mae, and thereby hangs a tale. Back in 1968, the Johnson administration had decided to “adjust” the federal books by taking Fannie Mae off the budget and establishing it as a “Government Sponsored Enterprise” (GSE). But while it was theoretically now an independent corporation, Fannie Mae did not have to adhere to the same rules regarding capitalization and oversight that bound most financial institutions. And in 1970 still another GSE was created, the Federal Home Loan Mortgage Corporation, or Freddie Mac, to expand further the secondary market in mortgage-backed securities.

This represented a huge moral hazard. The two institutions were supposedly independent of the government and owned by their stockholders. But it was widely assumed that there was an implicit government guarantee of both Fannie and Freddie’s solvency and of the vast amounts of mortgage-based securities they issued. This assumption was by no means unreasonable. Fannie and Freddie were known to enjoy lower capitalization requirements than other financial institutions and to be held to a much less demanding regulatory regime. If the United States government had no worries about potential failure, why should the market?

Forward again to the Clinton changes in 1995. As part of them, Fannie and Freddie were now permitted to invest up to 40 times their capital in mortgages; banks, by contrast, were limited to only ten times their capital. Put briefly, in order to increase the number of mortgages Fannie and Freddie could underwrite, the federal government allowed them to become grossly undercapitalized—that is, grossly to reduce their one source of insurance against failure. The risk of a mammoth failure was then greatly augmented by the sheer number of mortgages given out in the country.

That was bad enough; then came politics to make it much worse. Fannie and Freddie quickly evolved into two of the largest financial institutions on the planet, with assets and liabilities in the trillions. But unlike other large, profit-seeking financial institutions, they were headquartered in Washington, D.C., and were political to their fingertips. Their management and boards tended to come from the political world, not the business world. And some were corrupt: the management of Fannie Mae manipulated the books in order to trigger executive bonuses worth tens of millions of dollars, and Freddie Mac was found in 2003 to have understated earnings by almost $5 billion.

Both companies, moreover, made generous political contributions, especially to those members of Congress who sat on oversight committees. Their charitable foundations could be counted on to kick in to causes that Congressmen and Senators deemed worthy. Many of the political contributions were illegal: in 2006, Freddie was fined $3.8 million—a record amount—for improper election activity.

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By 2007, Fannie and Freddie owned about half of the $12 trillion in outstanding mortgages, an unprecedented concentration of debt—and of risk. Much of the debt was concentrated in the class of sub-prime mortgages that had proliferated after the 1995 regulations. These were mortgages given to people of questionable credit standing, in one of the attempts by the federal government to increase home ownership among the less well-to-do.

Since banks knew they could offload these sub-prime mortgages to Fannie and Freddie, they had no reason to be careful about issuing them. As for the firms that bought the mortgage-based securities issued by Fannie and Freddie, they thought they could rely on the government’s implicit guarantee. AIG, the world’s largest insurance firm, was happy to insure vast quantities of these securities against default; it must have seemed like insuring against the sun rising in the West.

Wall Street, politicians, and the press all acted as though one of the iron laws of economics, as unrepealable as Newton’s law of universal gravity, had been set aside. That law, simply put, is that potential reward always equals potential risk. In the real world, unfortunately, a high-yield, no-risk investment cannot exist.

In 2006, after an astonishing and unsustainable climb in home values, the inevitable correction set in. By mid-2007, many sub-prime mortgages were backed by real estate that was now of lesser value than the amount of debt. As the market started to doubt the soundness of these mortgages, their value and even their salability began to deteriorate. So did the securities backed by them. Companies that had heavily invested in sub-prime mortgages saw their stock prices and their net worth erode sharply. This caused other companies to avoid lending them money. Credit markets began to tighten sharply as greed in the marketplace was replaced by fear.

A vicious downward spiral ensued. Bear Stearns, the smallest investment bank on Wall Street, was forced into a merger in March with JPMorgan Chase, with guarantees from the Federal Reserve. Fannie and Freddie were taken over by the government in early September; Merrill Lynch sold itself to Bank of America; AIG had to be bailed out by the government to the tune of $85 billion; Lehman Brothers filed for bankruptcy; Washington Mutual became the biggest bank failure in American history and was taken over by JPMorgan Chase; to avoid failure, Wachovia, the sixth largest bank in the country, was taken over by Wells Fargo. The most creditworthy institutions saw interest rates climb to unprecedented levels—even for overnight loans of bank reserves, which are the foundation of the high-functioning capitalist system of the West. Finally it became clear that only a systemic intervention by the government would stem the growing panic and allow credit markets to begin to function normally again.

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Many people, especially liberal politicians, have blamed the disaster on the deregulation of the last 30 years. But they do so in order to avoid the blame’s falling where it should—squarely on their own shoulders. For the same politicians now loudly proclaiming that deregulation caused the problem are the ones who fought tooth and nail to prevent increased regulation of Fannie and Freddie—the source of so much political money, their mother’s milk.

To be sure, there is more than enough blame to go around. Forgetting the lessons of the past, Wall Street acted as though the only direction that markets and prices could move was up. Credit agencies like Moody’s, Standard & Poor’s, and Fitch gave high ratings to securities that, in retrospect, they clearly did not understand. The news media did not even try to investigate the often complex economics behind the housing market.

But remaining at the heart of the financial beast now abroad in the world are Fannie Mae and Freddie Mac and the mortgages they bought and turned into securities. Protected by their political patrons, they were allowed to pile up colossal debt on an inadequate capital base and to escape much of the regulatory oversight and rules to which other financial institutions are subject. Had they been treated as the potential risks to financial stability they were from the beginning, the housing bubble could not have grown so large and the pain that is now accompanying its end would not have hurt so much.

Herbert Hoover famously remarked that “the trouble with capitalism is capitalists. They’re too greedy.” That is true. But another and equal trouble with capitalism is politicians. Like the rest of us, they are made of all-too-human clay and can be easily blinded to reality by naked self-interest, at a cost we are only now beginning to fathom.

Footnotes

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About the Author

John Steele Gordon is the author of, among other books, An Empire of Wealth: The Epic Story of American Economic Power (2004). His “Look Who’s Afraid of Free Trade” appeared in the February COMMENTARY.

Liberals and the Surge

In early January 2007, 71 percent of Americans said the Iraq war was going moderately badly to very badly. Indeed, the war had been unpopular for much of the previous years, at times deeply so. But by this past September, a nationwide Pew survey found “a striking rise in public optimism about the situation in Iraq.” According to the poll, 58 percent of Americans now believe the war in Iraq is going well or very well, and the same percentage now also say that the U.S. will definitely or probably succeed in Iraq.

This news is encouraging—and not terribly surprising. After all, most Americans have assessed the situation in Iraq based on a reasonable interpretation of events on the ground. And since the January 2007 announcement of the “surge”—President Bush’s decision to deploy 30,000 additional troops to Iraq, armed with a fundamentally new counterinsurgency strategy—the situation on the ground has, by every conceivable measure, improved. In some cases, the progress has been stunning.

And yet, no matter what most American believe or what reality tells us is so, leading liberal observers and politicians, long in the vanguard of opposition to the war, have denounced the surge at every point. Even as some, in the face of overwhelming evidence, have been forced to concede a modicum of American progress, they have done so reluctantly and have downplayed the role played by administration policy in achieving that progress. Others have denied that significant progress has been made at all.

Why they have responded in this way is a question worth exploring. But first it may be useful to establish the record.

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The formal inauguration of the surge in January 2007—in announcing it, the President said it would “change America’s course in Iraq, and help us succeed in the fight against terror”—was met by liberal commentators with a skepticism bordering on derision.

Eugene Robinson of the Washington Post mocked Bush’s “fantasy-based escalation . . . which could only make sense in some parallel universe where pigs fly and fish commute on bicycles.” At Time, Joe Klein ridiculed “Bush’s futile pipe dream.” Jonathan Chait, writing in the Los Angeles Times, found “something genuinely bizarre” about those Americans who actually supported the new strategy. “It is not just that they are wrong. . . . It’s that they are completely detached from reality.” The New Republic’s Peter Beinart predicted that, by 2008, American soldiers would “still be dying, and the catastrophe will still be deepening.” In sending more troops to Baghdad, Beinart wrote, “Bush is showing his commitment to win—except that the United States has already lost.”

Liberal politicians were just as certain that the surge was a doomed and irresponsible policy. On the night of the announcement, Senator Barack Obama proclaimed: “I am not persuaded that 20,000 additional troops in Iraq are going to solve the sectarian violence there. In fact, I think it will do the reverse.” Later in the month, Senator Joseph Biden declared: “If he surges another 20, 30 [thousand], or whatever number he’s going to, into Baghdad, it’ll be a tragic mistake.” Senator Hillary Clinton similarly insisted that “I cannot support [the] proposed escalation of the war in Iraq,” while Senator John Kerry said that sending in additional troops was not an “answer” but “a tragic mistake.”

Throughout the spring, even though the full complement of additional troops had yet to arrive in Iraq, the drumbeat of opposition continued, and so did intimations of American defeat. To Richard Cohen of the Washington Post, “the [American] lives lost in Iraq were wasted.” Former Ambassador Peter Galbraith, writing in the New York Review of Books, argued that Bush had embraced a plan that “has no chance of actually working. At this late stage, 21,500 additional troops cannot make a difference.” On Capitol Hill, Senator Christopher Dodd asserted that “there is no military solution in Iraq. To insist upon a surge is wrong.” Senate majority leader Harry Reid declared that “this surge is not accomplishing anything” and in April announced flatly that the Iraq war was “lost.”

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Two months later, liberal critics of the war remained of the same mind, and were now demanding that we quit the field altogether. According to a July 8 New York Times editorial, the time had come “for the United States to leave Iraq, without any more delay than the Pentagon needs to organize an orderly exit.” (This, despite the paper’s acknowledgment in the same editorial that an American pullout was likely to yield “further ethnic cleansing, even genocide,” not to mention regional chaos and more terrorism.) James Fallows of the Atlantic, a sharp critic of the surge from the outset, wrote that the expectations “being heaped” on it were “simply laughable.”

In August, Michael Ignatieff, formerly of Harvard and now deputy leader of Canada’s Liberal party, took to the pages of the New York Times Magazine with a mea culpa titled “Getting Iraq Wrong: What the War Has Taught Me About Political Judgment.” Ignatieff wrote:

The unfolding catastrophe in Iraq has condemned the political judgment of a President. But it has also condemned the judgment of many others, myself included, who as commentators supported the [2003] invasion. Many of us believed, as an Iraqi exile friend told me the night the war started, that it was the only chance the members of his generation would have to live in freedom in their own country. How distant a dream that now seems.

In fact, however, far from having turned into an “unfolding catastrophe,” the dream was already getting closer to realization. By the summer of 2007, although Iraq was still in many ways a broken nation, evidence was mounting that the surge was working. In almost no time, sectarian violence had been sharply decreased in Baghdad, and the provinces of Anbar and Diyala were being reclaimed. Coalition forces were making huge headway in human intelligence, and Al Qaeda in Iraq (AQI) was on the run.

In September, a full report on the situation was delivered by David Petraeus, the military architect of the surge and the new commanding general in Iraq, and Ryan Crocker, the U.S. ambassador to Iraq. Both men had traveled to Washington to provide two days of congressional testimony.

Petraeus and Crocker reported that civilian Iraqi deaths in all categories had declined by more than 45 percent since the height of sectarian violence the previous December. During the same period, the number of overall ethno-sectarian deaths had decreased by more than half in the country as a whole, and by about 70 percent in Baghdad. In Anbar province, thanks in large part to the turn against AQI by local Anbaris, car bombings and suicide attacks had declined in each of the previous five months. Likewise, the number of areas in which AQI enjoyed sanctuary had been considerably reduced. Even the political front showed advances, with heartening early signs of a bottom-up reconciliation of hitherto warring Iraqi factions.

While both Petraeus and Crocker were careful not to overstate the degree of progress in Iraq, and reminded everyone who would listen that the country remained a fragile place, they left no doubt of their belief that, in the words of Crocker, “a secure, stable, democratic Iraq at peace with its neighbors is attainable.”

But none of this mattered to the administration’s liberal critics, who to their earlier prognosis of failure were now adding charges of government cooking of the evidence. Even before the Petraeus-Crocker testimony, Senator Dick Durbin, the Democratic majority whip, warned Americans that “by carefully manipulating the statistics, the Bush-Petraeus report will try to persuade us that violence in Iraq is decreasing and thus the surge is working.” After the hearing, Representative Edward Markey of Massachusetts said the general’s testimony was “just a façade to hide from view the continuing failure of the Bush administration’s strategy.” To Representative Rahm Emanuel, the general’s written report deserved to win “the Nobel Prize for creative statistics or the Pulitzer for fiction.”

Paul Krugman, an influential columnist for the New York Times, could not have agreed more. The administration, he flatly asserted, was intentionally misleading the public by “creating the perception that the ‘surge’ is succeeding, even though there’s not a shred of verifiable evidence to suggest that it is.” Others were even more reckless. A Democratic Senator complained to the website Politico that no one was willing to call Petraeus “a liar on national TV,” hoping instead that “outside groups will do this for us.” As if in response, MoveOn.org, the left-wing political-action committee, promptly took out a full-page ad in the New York Times proposing, in giant type, a new name for General Petraeus: “General Betray Us.”

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In November 2007, two months after Petraeus and Crocker testified, Barack Obama was still arguing that the surge was having the opposite effect from the one they had described: “not only have we not seen improvements, but we’re actually worsening, potentially, a situation there.” Representative David Obey, asked if the surge strategy was working, offered the novel view that if violence was in fact decreasing, it might be because the insurgents were “running out of people to kill.”

True, such palterings were becoming a little harder to sustain. The Washington Post, for one, was ready to conclude in a mid-November editorial that “the ‘surge’ of U.S. military forces in Iraq this year has been, in purely military terms, a remarkable success.” And not only in military terms: “Markets in Baghdad are reopening, and the curfew is being eased; the huge refugee flow out of the country has begun to reverse itself.” By the end of 2007, there was no question that Iraq, which a year earlier had been on the brink of implosion, was now on the mend. Attacks against citizens in Baghdad had dropped by almost 80 percent since November 2006, murders in Baghdad province had decreased by 90 percent, and roadside bombings had declined by approximately 70 percent. In the Dura market in southern Baghdad, where fewer than a handful of shops had been open in January 2007 there were now 500 in operation. As Joseph Fil, commanding general of the multinational division in Baghdad, reported, “many Iraqis now can shop without fearing for their lives.”

Nevertheless, in a January 2008 debate, the leading contenders for the Democratic nomination—Obama, Clinton, and John Edwards—still refused to reassess their stance on the surge. Instead, they silently dropped the subject in favor of re-emphasizing their commitment to withdraw all combat troops from Iraq and their unchanged opposition to the presence of any permanent bases there.

Others were not quite so ready to abandon their conviction that the surge itself had failed, even if that meant moving the goalposts on the definition of success. In February, House Speaker Nancy Pelosi, questioned on her unbending insistence that American troops must begin an immediate and massive withdrawal from Iraq, was asked by the CNN correspondent Wolf Blitzer: “Are you not worried that all the gains that have been achieved over the past year might be lost?” Pelosi replied: “There haven’t been gains, Wolf. The gains have not produced the desired effect, which is the reconciliation of Iraq. This is a failure. This is a failure.” In the Washington Post, the writer Michael Kinsley rang an inventive change on the same motif: the surge was a failure, he reasoned, because even though violence was down, and even though political progress was being made, the number of American troops was still roughly where it was when the surge was announced—as if the achievements produced by those troops were somehow disconnected from their presence.

In early April of this year, Petraeus and Crocker made a return appearance on Capitol Hill. By then, some liberal politicians were reluctantly conceding security gains, but insisted they were evanescent and therefore unimportant—“very nice to have,” in the words of Senator Sheldon Whitehouse of Rhode Island, “but essentially . . . meaningless.” To the columnist E.J. Dionne, Jr., the problem now was that “the administration and its supporters talk incessantly about winning but offer no strategy for victory.” In doing so, he continued, they “resemble their own parody of liberal do-gooders insisting on continuing flawed and foolish programs no matter how obvious it becomes that their efforts are doing more harm than good.”

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More harm than good? In his April testimony, while stipulating that “the situation in certain areas is still unsatisfactory and innumerable challenges remain,” Petraeus presented an avalanche of statistics illustrating the degree to which “security in Iraq is better than it was when Ambassador Crocker and I reported to you last September, and . . . significantly better than it was 15 months ago when Iraq was on the brink of civil war and the decision was made to deploy additional U.S. forces to Iraq.” To which Crocker added:

Last September, I said that the cumulative trajectory of political, economic, and diplomatic developments in Iraq was upward, although the slope of that line was not steep. Developments over the last seven months have strengthened my sense of a positive trend.

Which did not stop Barack Obama from taking to the op-ed page of the New York Times two months later to insist that “the same factors that led me to oppose the surge still hold true.” A week later, ABC’s Terry Moran asked Obama if, knowing what he knew now, would he support it? Obama’s answer was “No.” That is, he was still against the surge despite his own belated acknowledgment that it had, in fact, “succeeded beyond our wildest dreams.” In the effort to reconcile this blatant contradiction—akin to a diagnostician’s continuing to oppose the treatment that made the patient well—he twisted himself into an intellectual pretzel, asserting that the decrease in violence was the result not of any new American strategy but of “political factors inside Iraq that came right at the same time.” A similar counterfactual claim would later be made by Bob Woodward in his new book The War Within and by Peter Galbraith in the New York Review. In Galbraith’s summary judgment, “less violence . . . is not the same thing as success,” and in any case the surge “has not been the main reason for the decline in violence.”

And so it goes. By the time General Petraeus handed over the flag of his command to General Raymond Odierno in September, the situation in Iraq had been utterly transformed. Not only had overall violence in Iraq declined to almost “normal” levels,* and not only were Iraqi security forces growing in numbers and effectiveness as threats from al-Qaeda and Shiite militias decreased, but Iraq’s political leaders had also reached comprehensive domestic accommodations, passing key laws in the areas of provincial elections, the distribution of resources, amnesty, pensions, investment, and de-Baathification. Also in September, Iraq’s parliament passed a crucial election law that, according to a story in the New York Times, “represents a significant achievement for a country that has more often resorted to violence than political negotiation in resolving its differences.”

Petraeus once described Iraq as “hard but not hopeless.” Today, he says Iraq is “hard but hopeful.” That statement would seem beyond dispute.

Not, however, to the war’s liberal critics.

_____________

Those critics, in the piercing phrase of Senator Joseph Lieberman, “hear no progress in Iraq, see no progress in Iraq, and most of all, speak of no progress in Iraq.” So hermetically sealed off from reality are they that even Charles Peters, the founder of the liberal Washington Monthly, was driven to write as long ago as last December:

I have been troubled by the reluctance of my fellow liberals to acknowledge the progress made in Iraq in the last six months, a reluctance I am embarrassed to admit that I have shared. . . . [T]he fact is that the situation in Iraq, though some violence persists, is much improved since the summer. Why do liberals not want to face this fact, let alone ponder its implications?

Why, indeed? And, if reluctant in December 2007, why are most still reluctant today?

A generous interpretation is that by the end of 2006, many liberals had made a definitive good-faith judgment that the Iraq war was irretrievably lost. This then became the filter through which they viewed all later developments. Once convinced of the impossibility of substantial progress, never mind a decent outcome or an actual victory, they could not help receiving good news as anomalous and/or inherently unsustainable.

But the generous interpretation may be too generous, and also condescending. Reasonable and responsible adults are expected to assess the solidity of their convictions against the available evidence and in light of changing circumstances. Even at the time of the surge’s announcement, when things were going quite badly, should responsible adults not have been able to entertain the possibility that, given the enormity of what was at stake in the war, a fundamentally new approach merited at least a degree of support, however hesitant or conditional?

Instead, many pronounced the new approach a failure even before it was tried. Still worse was that they continued to pronounce it a failure even as the evidence began to amass that it was succeeding. Even those few who (like Richard Cohen and Joe Klein) eventually admitted they were wrong about the surge itself continued to insist they were right about the war. Others stuck more and more zealously to their original position the more it became falsified by reality. They, and not the President, were the ones who were truly “doubling down” on their bet—as if a decent outcome in Iraq threatened their entire worldview.

Nor was their blindness limited to the good news occurring in the lives of Iraqis. They seemed no less blind to the huge drop in American combat deaths. Those deaths, after all, had been said to be among the core concerns of the anti-surge critics, who along with their allies in the media had been focusing relentless attention on the numbers of American casualties in Iraq. Yet little was now made of the fact that—to take just one example—there were but five U.S. combat deaths in Iraq in July 2008. (The previous monthly low had been eight in May 2003, after the invasion.)

Nor, finally, has much if anything been made of the fact that coalition forces have drawn down significantly. All five of the U.S. combat brigades committed to the surge, as well as two Marine battalions and the Marine Expeditionary Unit, have withdrawn. One could not ask for a clearer sign that the surge has been achieving one of the key declared objectives of the anti-war critics themselves—namely, a reduction of American combat troops in Iraq. It is a sign that remains, for the critics, all but unnoticed.

_____________

Enter, ignominiously, politics. For some liberals, hatred of the President was clearly so all-encompassing that they had developed a deep investment in the failure of what they habitually dismissed not as America’s war but as “Bush’s war.” To an extent, this passion was driven by merely partisan considerations: Iraq had become a superbly effective instrument with which to bludgeon Republicans. It had helped the Democrats take control of both the House and the Senate in 2006; might not a thorough “Republican” defeat in Iraq lastingly reshape the political landscape in their favor?

This is, admittedly, an unpleasant line of speculation, and those foolhardy enough to venture upon it have been loudly condemned for questioning the patriotism of their political adversaries. But patriotism is not the issue—judgment is. When politicians acting in good faith misjudge a situation, nothing prevents them from acknowledging their error and explaining themselves. For the most part, we await such acknowledgments in vain.

In partial extenuation, it might be contended that politicians have an elementary obligation to be responsive to the opinions of their constituents; since Iraq had become a certifiably unpopular cause, stepping out of line on the issue was likely to be regarded as an offense punishable at the polls. But what, then, are we to say of the opinion shapers, the editorial writers of our great newspapers, the essayists and columnists and book authors who, unconstrained by petty interest, present themselves as stalwartly independent spirits willing to follow the truth wherever it may lead? What was at work in them when the evidence of American progress—which started as a trickle, and then became a river, and eventually became a flood—could no longer be denied? For not only did they continue to deny it, but they actively promoted an alternative policy of withdrawal and retreat that would have made an American defeat, and a jihadist and Iranian victory, inevitable. Is it not fair to say that what was at work in them was an ideological antipathy not just to an American President, but to America’s cause?

Fortunately, as I noted at the outset, Americans at large are not so ready to deny the evidence of their senses, and appear open to reasoned argument on the basis of that evidence. For a political leader in high office, this is a great blessing. Some eyes will refuse to open and some ears will refuse to hear and some voices will always be raised high in derision. To act rightly in such circumstances is difficult and often enormously costly; but it is the very essence of leadership. If a leader’s decision is wise, there are grounds for hoping that in time this wisdom will be vindicated and, perhaps, recognized—even in the case of a war once massively unpopular but now winnable.

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Footnotes

* According to the quarterly report submitted to Congress by the Department of Defense in September, “security incidents” in Iraq are at levels not seen since early 2004. Across Iraq, civilian deaths have declined by 77 percent since the same period in 2007, and ethno-sectarian-related deaths by 96 percent. Eleven of Iraq’s eighteen provinces are now under local Iraqi control.

---

About the Author

Peter Wehner, a senior fellow at the Ethics and Public Policy Center in Washington, D.C., served in the Bush White House as director of the office of strategic initiatives.

SNL: Countdown with Keith Olbermann

SNL: McCain, Palin on QVC

SNL Weekend Update w/ Sen. McCain

Obama Tells SF Chronicle He Will Bankrupt Coal Industry

Tedd Tripp on Parenting

Audio and video sessions from the recent parenting conference at Mars Hill in Seattle, featuring Tedd Tripp.

Session 1: The Call to Formative Instruction

• Audio
• Video

Session 2: Giving Kids a Vision for God’s Glory

• Audio
• Video

Session 3: Helping Kids Understand Authority

• Audio
• Video

Session 4: Helping Kids Understand the Heart

• Audio
• Video

Session 5: Overview of Corrective Discipline

• Audio
• Video

The billion dollar band

U2 will still be rocking and coining it when they approach their 60s, after the fine print of their lucrative new deal was revealed this week

Independent, October 25, 2008

Recession may be the buzzword of the year, but not in U2's world. The band's ability to command top dollar seems to be as strong as it always was.

And this week, while students and pensioners took to the streets to protest over a divisive Budget, details of U2's most recent deal were coming to light.

It was revealed that Bono, the Edge, Adam Clayton and Larry Mullen Jr had received shares totalling (EU)19m as part of their deal with U.S. entertainment giant Live Nation, which was signed amid much industry gossip in March.

The up-front payment -- made public after being reported to U.S. regulator Security and Exchange Commission -- is effectively a sweetener for signing up to Live Nation's new model order, and a telling illustration of how crucial the Dublin four-piece is for the U.S. corporation.

It also showcases the unstinting appeal of the U2 brand. After all, the 12-year deal signed with Live Nation is dependent on them being a going concern right up to their late 50s and being able to stay relevant in shifting music climates.

U2, all in their mid-40s now, are expected to play three hugely lucrative tours during the duration of the dozen-year deal. Based on their live outings to date, the band should comfortably pull in over $1bn from touring alone, as well as hundreds of million dollars more on merchandising. Both the band and Live Nation will share a sizeable chunk of all the money earned.

Unlike Madonna and Jay-Z -- who both signed big-money deals with Live Nation this summer -- U2 will retain control over their studio recordings. They enjoy an existing deal with Universal -- the biggest of the four record company "majors" -- and their forthcoming 12th album, tentatively titled No Line on the Horizon, will yield the band a rumoured 28pc royalty for each copy sold.

It's a royalty rate that's one of the best in the business and one that the band has enjoyed since the mid-Eighties. When one considers that each studio album shifts in the region of 10 million copies -- maintaining their position of, in Bono's words, "the biggest band in the world" -- those 28pcs really add up.

U2's decision to move part of its financial empire to Holland to minimise the tax they pay on the publishing side of their business continues to be criticised. In 2006, the group began moving some of their business affairs to a Dutch finance house in order to avail of a virtually tax-free status on their handsome royalties.

They are believed to have saved around (EU)15m by transferring the music publishing side of their business empire to Amsterdam -- a relatively paltry sum given their estimated joint wealth of (EU)690m.

"The reality is that U2's business is 90pc conducted around the world," manager Paul McGuinness said at the time. "Ninety percent of our tickets and 98pc of our records are sold outside of Ireland. It [Ireland] is where we live and where we work and where we employ a lot of people. But we pay taxes all over the world. And like any other business, we're perfectly entitled to minimise the tax we pay."

McGuinness -- the band's manager of over 30 years -- is seen as the the primary architect of U2's enormous wealth. Famously, the band divides all earnings in five equal portions, with McGuinness bagging as much as Bono.

Although he holds no business qualifications, McGuinness has been instrumental in managing their finances from day one.

His first role in rock management was looking after the long-forgotten trad-rock band Spud, but when he happened upon U2 he found something he liked in the then rough-and-ready band.

When he first started managing the group, they were still at school and legend has it that he kept the coins for their bus fares in a glass jar, only doling out the amount they required.

While debut album Boy helped put the band on the map, it was McGuinness who pushed them to tour the U.S. -- an often crippling expense for fledgling Irish bands, but one which helped foster a mutual love affair between the group and America.

And it was McGuinness who helped restore confidence in a band racked with insecurity after second album October was generally badly received. They re-grouped and hit the big time with its anthemic follow-up, War.

While the temptation must have existed early on to cash in there and then and sell the rights of the band's songs to the record company, he held firm. Others, such as Paul McCartney, sold the rights to their entire catalogue only to rue the decision shortly afterwards.

It was this intransigence and unshakable belief in U2's worth that helped McGuinness to negotiate their high royalty rate with Island Records -- one of the most lucrative in music history.

McGuinness also conducted the groundbreaking deal with Apple four years ago, which resulted in the U2 iPod, emblazoned with the key colours of their last album, How to Dismantle an Atomic Bomb, as well as helping to make Apple's iTunes the big success it is today by making 400 of their songs available -- a resounding endorsement to the legal download site.

When U2 signed with Live Nation, McGuinness explained the band's rationale: "There's a certain convergence taking place in the industry, and it's obvious that the biggest part of U2's business now is their live business, even though they're a major, major record-selling act."

The band's relationship with Live Nation has been mutually beneficial. McGuinness says: "For some time now, they've been executing, promoting and producing our tours as partners pretty well perfectly. Since they want to consolidate rights and they have an online vision that I believe in, their Ticketmaster deal is expiring, which is going to change their margin, I'm very happy to go into a partnership with them.

And, apart from all the financial stuff, there is a real friendship, a real bond."

That bond is wholly understandable when one considers that U2's 18-month Vertigo tour between 2005 and 2007 took in close to (EU)400m, making it the second-highest grossing tour of all time (behind the Rolling Stones).

The length of the deal, which exceeds even Madonna's 10-year pact, "indeed is a mark of the faith and trust we have in them," according to McGuinness. "In 12 years' time, U2 will not even be the age the Rolling Stones are now."

Unlike Mick Jagger and friends, U2 will be hoping to continue to generate excitement about each new album released rather than rest on a greatest hits routine.

Few bands of their vintage continue to arouse such fascination on the music front and there is building anticipation for No Line on the Horizon, which will be released earlier next year rather than in November as had been originally thought.

After flirting with dance music and electronica in the Nineties, U2 this decade have returned, to some extent, to their roots with a harder, rock-oriented sound. Various members of the "U2 family" have been making encouraging noises of late -- including long-term producer Daniel Lanois, who recently described it as "one of the great, innovative records from U2."

Universal -- and Interscope, its subsidiary that U2 now call home -- will be hoping that it can follow the successes of the two other albums that the band have released this decade, 2000's All That You Can't Leave Behind and 2004's How to Dismantle an Atomic Bomb.

Meanwhile, Bono was in the news this week for reasons closer to home. He and his wife Ali have applied to Dun Laoghaire/ Rathdown Co. Council to add an extension to their Killiney mansion to provide them with a massive master bedroom, two ensuite bathrooms, walk-in dressing rooms and a study.

Although none of the members lives the sort of ostentatious lifestyle enjoyed by Elton John, for instance, they are not exactly scrimping it either.

With homes in Killiney (valued at about (EU)10m) and a villa in the south of France, Bono also spends time in his enormous triplex penthouse apartment in Manhattan.

The Edge divides his time between Dalkey, Co. Dublin, a waterside mansion in Malibu, California, and a French villa.

Adam Clayton owns a 20-room pile in Rathfarnham, south Dublin, while Larry Mullen Jr. has a pair of large houses in Howth on Dublin's northside.

Top 10 Spiritual U2 Songs

Related Article(s):

• September 08 2008 - @U2 - U2 Lists: Top 8 Alternative Songs
• July 21 2008 - @U2 - U2 Lists: The 5 Best Things About Being a U2 Fan
• July 01 2008 - @U2 - U2 Lists: Top Ten One-Line Lyrics

Born Alive Bill & Obama

Obama's Prime-Time Ad Fact Check

WASHINGTON (AP) - Democratic presidential candidate Barack Obama
was less than upfront in his half-hour commercial Wednesday night
about the costs of his programs and the crushing budget pressures
he would face in office.

Obama's assertion that "I've offered spending cuts above and
beyond" the expense of his promises is accepted only by his
partisans. His vow to save money by "eliminating programs that
don't work" masks his failure throughout the campaign to specify
what those programs are - beyond the withdrawal of troops from
Iraq.

A sampling of what voters heard in the ad, and what he didn't
tell them:

THE SPIN: "That's why my health care plan includes improving
information technology, requires coverage for preventive care and
pre-existing conditions and lowers health care costs for the
typical family by $2,500 a year."

THE FACTS: His plan does not lower premiums by $2,500, or any
set amount. Obama hopes that by spending $50 billion over five
years on electronic medical records and by improving access to
proven disease management programs, among other steps, consumers
will end up saving money. He uses an optimistic analysis to suggest
cost reductions in national health care spending could amount to
the equivalent of $2,500 for a family of four. Many economists are
skeptical those savings can be achieved, but even if they are, it's
not a certainty that every dollar would be passed on to consumers
in the form of lower premiums.
---

THE SPIN: "I also believe every American has a right to
affordable health care."

THE FACTS: That belief should not be confused with a guarantee
of health coverage for all. He makes no such promise. Obama hinted
as much in the ad when he said about the problem of the uninsured:
"I want to start doing something about it." He would mandate
coverage for children but not adults. His program is aimed at
making insurance more affordable by offering the choice of
government-subsidized coverage similar to that in a plan for
federal employees and other steps, including requiring larger
employers to share costs of insuring workers.
---

THE SPIN: "I've offered spending cuts above and beyond their
cost."

THE FACTS: Independent analysts say both Obama and Republican
John McCain would deepen the deficit. The nonpartisan Committee for
a Responsible Federal Budget estimates Obama's policy proposals
would add a net $428 billion to the deficit over four years - and
that analysis accepts the savings he claims from spending cuts. The
nonpartisan Tax Policy Center, whose other findings have been
quoted approvingly by the Obama campaign, says: "Both John McCain
and Barack Obama have proposed tax plans that would substantially
increase the national debt over the next 10 years." The analysis
goes on to say: "Neither candidate's plan would significantly
increase economic growth unless offset by spending cuts or tax
increases that the campaigns have not specified."
---

THE SPIN: "Here's what I'll do. Cut taxes for every working
family making less than $200,000 a year. Give businesses a tax
credit for every new employee that they hire right here in the U.S.
over the next two years and eliminate tax breaks for companies that
ship jobs overseas. Help homeowners who are making a good faith
effort to pay their mortgages, by freezing foreclosures for 90
days. And just like after 9-11, we'll provide low-cost loans to
help small businesses pay their workers and keep their doors open.
"

THE FACTS: His proposals - the tax cuts, the low-cost loans, the
$15 billion a year he promises for alternative energy, and more -
cost money, and the country could be facing a record $1 trillion
deficit next year. Indeed, Obama recently acknowledged - although
not in his commercial - that: "The next president will have to
scale back his agenda and some of his proposals."

A Healthy Obsession: Yes, you could be addicted to cycling--and that's probably a good thing.

Bicycling--and other forms of vigorous exercise--changes brain chemistry, says John J. Ratey, M.D., author of Spark: The Revolutionary New Science of Exercise and the Brain and an associate clinical professor of psychiatry at Harvard Medical School. Exercise increases the amount in your body of neurotransmitters serotonin, dopamine and norepinephrine, chemicals that allow neurons to communicate with one another. "They get a boost very quickly," Ratey says.

Scientists have long suspected that dopamine in particular plays a key role in fueling human drive. The theory is that the brain releases dopamine to spur behavior associated with survival, such as eating, having sex and winning money. Dopamine makes those experiences more salient and memorable--and more appealing, which motivates us to repeat them. So while our brains recognize that biking is fun, dopamine reinforces the point.

Notably, alcohol and nicotine trigger the release of dopamine into the same area of the brain that exercise does. "This particular pathway has been linked to reward and motivation, and it contributes to how we pursue healthy and unhealthy behavior," says Daniel McGehee, Ph.D., a neurobiologist at the University of Chicago Medical Center who studies the link between nicotine and dopamine.

It's possible to become hooked on the chemical changes that exercise brings about, Ratey says. Hard rides trigger human growth hormone, which he calls the body's "master craftsman," because it burns belly fat, adds muscle fiber and increases brain volume.

Let Christians Vote As Though They Were Not Voting

John McCain — The Agony of a Gadfly

NY Times presidential endorsements

Ho hum, last week the New York Times endorsed Barack Obama for president. Accompanying the endorsement, however, was an online feature of interest to anyone fascinated by the history of presidents or newspapers: "New York Times Endorsement Through the Ages," a compilation of every Times general-election presidential endorsement starting in 1860.

Although the paper's first six endorsements all went to Republicans, between 1884 and 1936 it gave the nod to every Democratic nominee except the populist William Jennings Bryan. Bryan was nominated three times, occasioning two Republican endorsements, for McKinley in 1900 and Taft in 1908. In 1896 the Times endorsed John Palmer, a Democrat who favored the gold standard and ran under the banner of the National Democratic Party. Palmer got just under 1% nationwide and a whopping 1.33% in New York state, which is why you've probably never heard of him.

The Times endorsed Republican Wendell Willkie in 1940, in part out of discomfort at the thought of giving Franklin D. Roosevelt an unprecedented third term. The Times also faulted FDR for "fostering the idea that there exists a great fund of wealth which has only to be divided more equitably in order to make everyone prosperous" and "permitting important members of his Administration to preach the doctrines of class jealousy and class hatred." Ah, the good old days.

The paper switched back to FDR in the wartime election of 1944, supporting him over Republican Thomas Dewey. It endorsed Dewey over Truman in 1948, then Eisenhower in both 1952 and 1956. In 1960, John F. Kennedy got the nod--and so did every subsequent Democrat, 13 in a row and counting.

A political endorsement is, to some extent, an act of prognostication, and as we read through the old editorials we were amused at some of the predictions that turned out to be quite wrong:

In endorsing Abraham Lincoln in 1860, the Times noted that the Senate was certain to remain under Democratic control, and thus predicted that his tenure would not be all that consequential:

There will be no hostile legislation at Washington--no "overt acts" of aggression which will call for a declaration of independence on the part of the Southern States. Things will go on very much as they have hitherto--except that we shall have honesty and manliness instead of meanness and corruption in the Executive departments, and a decent regard for the opinions of mankind in the tone and talk of the Government on the subject of Slavery.

Other than the Civil War, the prediction was accurate.

In 1872, the Times opined that "[Horace] Greeley's election would mean, so far as New-York State is concerned, the revival of Tammany, and the utter loss of all the positions we won last year.--Grant's re-election would bury Tammany and all its supporters fifty fathoms deep." Grant won, but Tammany Hall, the Democratic political machine, remained formidable until FDR's election in 1932.

Of Rutherford B. Hayes in 1876, the Times predicted: "He will be carried to the White House by the force of popular confidence, made all the stronger by his non-participation in the struggle for party victory." In fact, his opponent, Democrat Samuel Tilden, received a majority of the popular vote, and Hayes became president only after a prolonged controversy over four states' electoral votes.

In 1912, the Republicans split. President Taft, the party's nominee, was challenged by former president Theodore Roosevelt as well as Democrat Woodrow Wilson. The Times issued an odd dual endorsement titled "Wilson First, Taft Second":

It is in the interest of the Nation that the Republican Party should be preserved as an organized, coherent opposition. It is of great moment, it is of urgent need, that the Republican candidate should come out second in the poll, second, not third, in the Electoral College and in the popular vote. The party will then be in a position to rebuild, to free itself from the influences that have diminished its estate, to hold again the place in the politics and in the affairs of the Nation to which it is entitled by its historic achievements.

Roosevelt surpassed Taft in both the popular vote (27% to 23%) and the electoral (88 to 8). But the schism did not last. By 1916 the party was unified behind Charles Evans Hughes, and in 1920 it again won the White House, going on to dominate politics until the stock market crash of 1929.

In 1928 the Times endorsed Alfred E. Smith on the strength of a single issue: Prohibition, which Smith opposed:

It is the first opportunity which Americans opposed to prohibition have ever had to register their opinion and make it felt by the politicians. If this opportunity is not grasped, years may pass before it comes again. All the Dry forces are militantly for Hoover. . . . If [Smith] is defeated every fortress will be in the hands of the Drys. Congress will more than ever accept the voice of the Anti-Saloon League as the voice of the American people. . . . If Hoover is elected, every anti-prohibitionist who voted for him should acquiesce in present conditions without further complaint.

Hoover was elected, but political tides turned. Less than two weeks before Hoover left office, Congress, then in Democratic hands, proposed the 21st Amendment, which was ratified by the end of 1933.

In endorsing FDR's 1936 re-election, the Times found reassurance in the calming of political rhetoric:

No responsible Republican any longer froths at the mouth in charging that President Roosevelt is setting out to be a dictator after the style of Stalin or Hitler. The wild assertions that he intends to tear up the Constitution and destroy the Supreme Court are not heard today from any serious speaker.

In 1937, however, Roosevelt proposed legislation that would have expanded the Supreme Court, allowing FDR to nominate six new members immediately. Congress balked at his "court packing" plan. As for the suggestion that FDR was setting out to be a dictator, it did arise again in 1940, when he sought a third term:

The doctrine of one man's indispensability is a new doctrine for the United States. It is a doctrine which less scrupulous men in Europe have used to root themselves in power.

That quotation is from the Times's endorsement of Wendell Willkie.

Endorsing Kennedy over Nixon in 1960, the Times praised his restraint on the then-burning question of Quemoy and Matsu, a pair of Chinese islands under Taiwanese control that the Red Chinese had attempted to conquer:

There are large areas of the world--particularly in Southeastern Asia--where ideological conflict between communism and anti-communism may break out at any moment into local warfare. Are we, as Mr. Nixon suggests, to use American manpower to prevent the loss of "one inch of free territory" in such areas? The choice is not so easy as Mr. Nixon implies. It involves the question of the intrinsic importance of each such area to the security of the United States, the question of allied assistance, the possible cost of American intervention in terms of American lives. The oversimplification of Mr. Nixon's sweeping declarations in these matters is not reassuring.

As it turned out, it was Kennedy and his successor, Lyndon B. Johnson, who got America into a shooting war in Southeast Asia.

In 1984 the Times thought Walter Mondale would be a better Cold War president than the incumbent:

Lawyer Mondale offers pragmatic skill at making the best of reality. Ideologue Reagan offers the same tenacity that has brought him out diplomatically empty-handed. Who is likely to do better in arms negotiations in the next term, Walter Mondale or the President who tickles the religious right by reviling the Soviet Union as an Evil Empire?

This was not quite disproved, since Mondale never got the chance, but it's hard to imagine he could have turned out better on this score than Reagan did.

Since we've had some fun at the expense of the Times's errors, we thought we'd compile all of The Wall Street Journal's presidential endorsements and take a look at them as well. Fortunately, our job was easier than the Times guys', for here is the complete list:

• 1928: Herbert Hoover (defeated Alfred E. Smith)

The Hoover endorsement was less than full-throated, and, like many of the Times's endorsements, it cannot be reckoned a prognosticatorial triumph:

The Wall Street Journal has criticized the tariff more than it has ever praised it and regards the device of the Tariff Board as bad in principle and worse in practice. It was opposed to the Eighteenth Amendment. It regards the plea that labor is more efficient under Prohibition as a thoroughly immoral argument for chattel slavery. Nevertheless it advises its readers to vote for Hoover, as the soundest business proposition for those with a financial stake in the country.

Like Mondale and arms control, Smith never got a chance to be tested as a "business proposition." But of course things got bad enough under Hoover that it is difficult to imagine they would have been worse.

Palin Shows How to Transcend the Culture Wars: A society should be judged by how it treats its weakest members.

AP

Todd and Sarah Palin with their son Trig.

Will Obama Gut Defense? Capitol Hill Democrats want to target the Pentagon.

Current levels of funding don't quite suffice to operate 300 ships, or about half the number the U.S. had at the end of the Reagan arms buildup. The Navy would be satisfied with 313.

Current funding is also just adequate to purchase about 65 new planes for the Air Force each year, even as the average age of each plane creeps upward to nearly 24 years. Last year, the entire fleet of F-15Cs -- the Air Force's mainstay fighter -- was grounded after one of the planes came apart in midair. Spending on maintenance alone is up more than 80% from a decade ago. Is that another defense item Mr. Biden thinks we can't afford?

(As for nuclear weapons, the U.S. hasn't built a new warhead in decades. Its mainstay, the W76, is widely suspected of being unreliable, yet Congress has resisted funding the so-called Reliable Replacement Warhead.)

Maybe it seems odd that the Pentagon, whose budget for 2009 runs to well over $500 billion -- not including the supplemental $165 billion for Iraq and Afghanistan -- should struggle to afford the equipment it needs.

But it's not odd. We've been fighting two wars, straining people and equipment. Weapons have generally become more complex and expensive. President Clinton's "procurement holiday" punted the modernization problems to the present. And even after the Bush buildup, defense spending amounts to just 4% of gross domestic product. By contrast, at the nadir of Cold War defense spending under Jimmy Carter, the figure was 4.7%.

All this should argue for at least a modest recapitalization effort by an Obama administration, assuming it really believes a strong military is "necessary to sustain peace." A study by the Heritage Foundation makes the case that defense spending should rise to close to $800 billion over the next four years in order to stick to the 4% GDP benchmark. That's unrealistic in light of the financial crisis. But holding the line at current levels is doable -- and necessary.

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ABC News.com: Media's Presidential Bias and Decline

The traditional media are playing a very, very dangerous game -- with their readers, with the Constitution and with their own fates.

The sheer bias in the print and television coverage of this election campaign is not just bewildering, but appalling. And over the last few months I've found myself slowly moving from shaking my head at the obvious one-sided reporting, to actually shouting at the screen of my television and my laptop computer.

But worst of all, for the last couple weeks, I've begun -- for the first time in my adult life -- to be embarrassed to admit what I do for a living. A few days ago, when asked by a new acquaintance what I did for a living, I replied that I was "a writer," because I couldn't bring myself to admit to a stranger that I'm a journalist.

You need to understand how painful this is for me. I am one of those people who truly bleeds ink when I'm cut. I am a fourth-generation newspaperman. As family history tells it, my great-grandfather was a newspaper editor in Abilene, Kan., during the last of the cowboy days, then moved to Oregon to help start the Oregon Journal (now the Oregonian).

My hard-living -- and when I knew her, scary -- grandmother was one of the first women reporters for the Los Angeles Times. And my father, though profoundly dyslexic, followed a long career in intelligence to finish his life (thanks to word processors and spellcheckers) as a very successful freelance writer. I've spent 30 years in every part of journalism, from beat reporter to magazine editor. And my oldest son, following in the family business, so to speak, earned his first national byline before he earned his drivers license.

So, when I say I'm deeply ashamed right now to be called a "journalist," you can imagine just how deep that cuts into my soul.

Now, of course, there's always been bias in the media. Human beings are biased, so the work they do, including reporting, is inevitably colored. Hell, I can show you 10 different ways to color variations of the word "said" -- muttered, shouted, announced, reluctantly replied, responded, etc. -- to influence the way a reader will apprehend exactly the same quote. We all learn that in Reporting 101, or at least in the first few weeks working in a newsroom.

But what we are also supposed to learn during that same apprenticeship is to recognize the dangerous power of that technique, and many others, and develop built-in alarms against them.

But even more important, we are also supposed to be taught that even though there is no such thing as pure, Platonic objectivity in reporting, we are to spend our careers struggling to approach that ideal as closely as possible.

That means constantly challenging our own prejudices, systematically presenting opposing views and never, ever burying stories that contradict our own world views or challenge people or institutions we admire. If we can't achieve Olympian detachment, than at least we can recognize human frailty -- especially in ourselves.

Reporting Bias

For many years, spotting bias in reporting was a little parlor game of mine, watching TV news or reading a newspaper article and spotting how the reporter had inserted, often unconsciously, his or her own preconceptions. But I always wrote it off as bad judgment and lack of professionalism, rather than bad faith and conscious advocacy.

Sure, being a child of the '60s I saw a lot of subjective "New" Journalism, and did a fair amount of it myself, but that kind of writing, like columns and editorials, was supposed to be segregated from "real" reporting, and, at least in mainstream media, usually was. The same was true for the emerging blogosphere, which by its very nature was opinionated and biased.

But my complacent faith in my peers first began to be shaken when some of the most admired journalists in the country were exposed as plagiarists, or worse, accused of making up stories from whole cloth.

I'd spent my entire professional career scrupulously pounding out endless dreary footnotes and double-checking sources to make sure that I never got accused of lying or stealing someone else's work -- not out of any native honesty, but out of fear: I'd always been told to fake or steal a story was a firing offense & indeed, it meant being blackballed out of the profession.

And yet, few of those worthies ever seemed to get fired for their crimes -- and if they did they were soon rehired into even more prestigious jobs. It seemed as if there were two sets of rules: one for us workaday journalists toiling out in the sticks, and another for folks who'd managed, through talent or deceit, to make it to the national level.

Meanwhile, I watched with disbelief as the nation's leading newspapers, many of whom I'd written for in the past, slowly let opinion pieces creep into the news section, and from there onto the front page. Personal opinions and comments that, had they appeared in my stories in 1979, would have gotten my butt kicked by the nearest copy editor, were now standard operating procedure at the New York Times, the Washington Post, and soon after in almost every small town paper in the U.S.

But what really shattered my faith -- and I know the day and place where it happened -- was the war in Lebanon three summers ago. The hotel I was staying at in Windhoek, Namibia, only carried CNN, a network I'd already learned to approach with skepticism. But this was CNN International, which is even worse.

I sat there, first with my jaw hanging down, then actually shouting at the TV, as one field reporter after another reported the carnage of the Israeli attacks on Beirut, with almost no corresponding coverage of the Hezbollah missiles raining down on northern Israel. The reporting was so utterly and shamelessly biased that I sat there for hours watching, assuming that eventually CNNi would get around to telling the rest of the story & but it never happened.

The Presidential Campaign

But nothing, nothing I've seen has matched the media bias on display in the current presidential campaign.

Republicans are justifiably foaming at the mouth over the sheer one-sidedness of the press coverage of the two candidates and their running mates. But in the last few days, even Democrats, who have been gloating over the pass -- no, make that shameless support -- they've gotten from the press, are starting to get uncomfortable as they realize that no one wins in the long run when we don't have a free and fair press.

I was one of the first people in the traditional media to call for the firing of Dan Rather -- not because of his phony story, but because he refused to admit his mistake -- but, bless him, even Gunga Dan thinks the media is one-sided in this election.

Now, don't get me wrong. I'm not one of those people who think the media has been too hard on, say, Republican vice presidential nominee Gov. Sarah Palin, by rushing reportorial SWAT teams to her home state of Alaska to rifle through her garbage. This is the big leagues, and if she wants to suit up and take the field, then Gov. Palin better be ready to play.

The few instances where I think the press has gone too far -- such as the Times reporter talking to prospective first lady Cindy McCain's daughter's MySpace friends -- can easily be solved with a few newsroom smackdowns and temporary repostings to the Omaha bureau.

No, what I object to (and I think most other Americans do as well) is the lack of equivalent hardball coverage of the other side -- or worse, actively serving as attack dogs for the presidential ticket of Sens. Barack Obama, D-Ill., and Joe Biden, D-Del.

If the current polls are correct, we are about to elect as president of the United States a man who is essentially a cipher, who has left almost no paper trail, seems to have few friends (that at least will talk) and has entire years missing out of his biography.

That isn't Sen. Obama's fault: His job is to put his best face forward. No, it is the traditional media's fault, for it alone (unlike the alternative media) has had the resources to cover this story properly, and has systematically refused to do so.

Why, for example to quote the lawyer for Republican presidential nominee Sen. John McCain, R-Ariz., haven't we seen an interview with Sen. Obama's grad school drug dealer -- when we know all about Mrs. McCain's addiction? Are Bill Ayers and Tony Rezko that hard to interview? All those phony voter registrations that hard to scrutinize? And why are Sen. Biden's endless gaffes almost always covered up, or rationalized, by the traditional media?

Joe the Plumber

The absolute nadir (though I hate to commit to that, as we still have two weeks before the election) came with Joe the Plumber.

Middle America, even when they didn't agree with Joe, looked on in horror as the press took apart the private life of an average person who had the temerity to ask a tough question of a presidential candidate. So much for the standing up for the little man. So much for speaking truth to power. So much for comforting the afflicted and afflicting the comfortable, and all of those other catchphrases we journalists used to believe we lived by.

I learned a long time ago that when people or institutions begin to behave in a matter that seems to be entirely against their own interests, it's because we don't understand what their motives really are. It would seem that by so exposing their biases and betting everything on one candidate over another, the traditional media is trying to commit suicide -- especially when, given our currently volatile world and economy, the chances of a successful Obama presidency, indeed any presidency, is probably less than 50/50.

Furthermore, I also happen to believe that most reporters, whatever their political bias, are human torpedoes & and, had they been unleashed, would have raced in and roughed up the Obama campaign as much as they did McCain's. That's what reporters do. I was proud to have been one, and I'm still drawn to a good story, any good story, like a shark to blood in the water.

So why weren't those legions of hungry reporters set loose on the Obama campaign? Who are the real villains in this story of mainstream media betrayal?

The editors. The men and women you don't see; the people who not only decide what goes in the paper, but what doesn't; the managers who give the reporters their assignments and lay out the editorial pages. They are the real culprits.

Bad Editors

Why? I think I know, because had my life taken a different path, I could have been one: Picture yourself in your 50s in a job where you've spent 30 years working your way to the top, to the cockpit of power & only to discover that you're presiding over a dying industry. The Internet and alternative media are stealing your readers, your advertisers and your top young talent. Many of your peers shrewdly took golden parachutes and disappeared. Your job doesn't have anywhere near the power and influence it did when your started your climb. The Newspaper Guild is too weak to protect you any more, and there is a very good chance you'll lose your job before you cross that finish line, 10 years hence, of retirement and a pension.

In other words, you are facing career catastrophe -- and desperate times call for desperate measures. Even if you have to risk everything on a single Hail Mary play. Even if you have to compromise the principles that got you here. After all, newspapers and network news are doomed anyway -- all that counts is keeping them on life support until you can retire.

And then the opportunity presents itself -- an attractive young candidate whose politics likely matches yours, but more important, he offers the prospect of a transformed Washington with the power to fix everything that has gone wrong in your career.

With luck, this monolithic, single-party government will crush the alternative media via a revived fairness doctrine, re-invigorate unions by getting rid of secret votes, and just maybe be beholden to people like you in the traditional media for getting it there.

And besides, you tell yourself, it's all for the good of the country &

This is the opinion of the columnist and in no way reflects the opinion of ABC News.

Michael S. Malone is one of the nation's best-known technology writers. He has covered Silicon Valley and high-tech for more than 25 years, beginning with the San Jose Mercury News as the nation's first daily high-tech reporter. His articles and editorials have appeared in such publications as The Wall Street Journal, the Economist and Fortune, and for two years he was a columnist for The New York Times. He was editor of Forbes ASAP, the world's largest-circulation business-tech magazine, at the height of the dot-com boom. Malone is the author or co-author of a dozen books, notably the best-selling "Virtual Corporation." Malone has also hosted three public television interview series, and most recently co-produced the celebrated PBS miniseries on social entrepreneurs, "The New Heroes." He has been the ABCNews.com "Silicon Insider" columnist since 2000.

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