Well after spending hours noodling outloud on why I object to the Treasury bailout proposal, Paul Krugman asks the same questions I asked and comes up with the same conclusions, but short and sweet:

What is this bailout supposed to do? [ed. That's the $700 billion question.] Will it actually serve the purpose? [ed. Not bloody likely!] What should we be doing instead? [ed. A real RTC-like effort.]

What's the heart of the problem? The pricing scenario (my Scenario 2) we must assume if the plan is to have any impact at all.

So where in this process does the Temporary Asset Relief Plan offer any, well, relief? The answer is that it possibly offers some respite in stage 4: the Treasury steps in to buy assets that the financial system is trying to sell, thereby hopefully mitigating the downward spiral of asset prices. But the more I think about this, the more skeptical I get about the extent to which it’s a solution. Problems: (a) Although the problem starts with mortgage-backed securities, the range of assets whose prices are being driven down by deleveraging is much broader than MBS. So this only cuts off, at most, part of the vicious circle. (b) Anyway, the vicious circle aspect is only part of the larger problem, and arguably not the most important part. Even without panic asset selling, the financial system would be seriously undercapitalized, causing a credit crunch — and this plan does nothing to address that. Or I should say, the plan does nothing to address the lack of capital unless the Treasury overpays for assets. And if that’s the real plan, Congress has every right to balk.

As they say, read the whole, short thing.
UPDATE: Fester has a good roundup of sensible objections in "talking points" format at Newhoggers.

The $700 billion Treasury proposal is a non-starter on a host of grounds. I'll leave it to others to spell out the awesome dreadfulness -- politically and even constitutionally -- of giving a lame-duck Bush Administration such a gargatuan blank-check. The proposal also flunks on basic "fairness" principles -- McCain's sketchy notion of a Mortgage and Investment Trust, though inadequate, would be preferable in that it at least places some cost to participation (warrants) on participating institutions.

On purely mechanical grounds, others can better explain why the notion that Treasury will be able to use market mechanisms (e.g. reverse auctions) to price the junk transparently is laughable, given the extremely heterogenous nature of the instruments they'll be buying. Again, as a mechanical matter, I'm less concerned about objections that Treasury would hire outside firms to dispose of the assets that are purchased -- the use of Asset Management Companies to handle the cleanup of busted banking systems is a familiar solution in financial crises. The objection to AMCs isn't their structure but that they don't move us any further in promoting workouts of mortgages so that the downward spiral in asset values can be ended.

But rather than objecting on political or technical grounds, I want to focus on what I see as the fundamental problem with the proposal. We don't know what this proposal is trying to accomplish. And under almost any scenario, it is highly unlikely to work. If this proposal had been made by an Asian government during the financial crisis of 1998, it would have been hooted down by international financial experts, led by the US Treasury, as wishful thinking and crony-protection on a gigantic scale.

This proposal isn't simply a matter of removing some toxic sludge that's gumming up otherwise healthy financial plumbing. As a two-year roll-over facility of $700 billion, it's a much bigger deal than the government getting new authority to provide liquidity to the system. With hundreds of billions involved, it's more than simply being authorized to take risky assets of uncertain value in return for providing liquidity to otherwise healthy financial institutions (FIs) who don't have access to the interbank markets due to the uncertainty that has frozen the global markets.

In very simple terms, there are two alternative possible objectives to this gargantuan proposal, but we haven't been told which one is the real purpose.

1. Treasury intends to pay a low price for toxic waste to desperate financial institutions (FIs), get the junk off the FIs' books, and allow the "system" to recognize the losses but stop further bleeding (any futher bleeding will take place in Treasury's hands at taxpayer expense), so the affected FIs can take further steps to delever their balance sheets and recapitalize.


2. Treasury intends to pay a high price for toxic waste, which will serve to effectively recapitalize FIs who are allowed to sell their junk to the government.

Scenario 1. If the government's purpose is to pay a low price merely to "stop the bleeding," there are two challenges. First, since FIs will not be eager to book losses that will leave their balance sheets exposed, only those FIs who find themselves in extremis are likely to take advantage of the facility. Second, stopping the bleeding is only the intial step. If an FI's core businesses is solid after the junk is removed, they'll still be left with repairing their balance sheets. They'll have to deleverage (selling off assets and engaging in less, not more, new lending) and recapitalize (finding new equity or highly subordinated debt from private investors). Most will be looking for a buyer. And if a buyer can't be found, it's liquidation time, most likely in the hands of a government agency like the FDIC. So a "low price" scenario will necessitate further government action, both to complete the clean-up process and to counter the credit crunch that will accompany deleveraging by surviving FIs. if Treasury is trying to smooth things over until the private sector or the FDIC or a future RTC can recapitalize/liquidate these firms, why not just do it straight away in a clean (and probably cheaper to the taxpayer in the long-run) fashion by setting up an RTC now.

Scenario 2. If the government's purpose is backdoor recapitalization, we have a different set of problems. This would be a pure bail-out, with no apparent cost to the participating FIs. The core dilemma, then, is how to allocate this taxpayer largess. Toxic waste is littered across the entire global financial system, not simply in US-based banks and investment banks but in foreign FIs (which are inextricably linked with American FIs -- a major reason why both Fannie/Freddie and AIG had to be taken over) and in non-banking institutions, from hedge funds to pension, insurance and mutual funds.

Objections to preferential deals will rise not only from those footing the bill -- US taxpayers -- but from other holders of US MBS, especially competing FIs. Treasury could allocate the goodies on the basis of need -- giving preference to FIs who needed recapitalization -- but that would reward the managers and shareholders who are most responsible for the current state of affairs. If I'm Citibank or BofA (or Deutschebank) and have managed to survive this long, how enthusiastic am I going to be if WaMu gets a bunch of junk taken off its hands at a price that allows it to stay in business? The "healthy" FIs benefit only to the extent that the system avoids a catastrophic meltdown or they escape rising liabilities or declining assets as parties to toxic Credit Default Swaps. These aren't minor benefits, but when the time comes for FIs to queue for freebies, how likely will it be that the healthier FIs won't scream bloody murder if they're forced to go to the back of the queue? Or as an individual investor, why should WaMu get a good deal on the junk it holds, when my own investment-grade bond fund, where I have my retirement funds, gets no benefit? (As an early indicator that eligibility for the toxic waste buy-up program may be highly prized, Calculated Risk notes that the Treasury Fact Sheet implies that foreign institutions may be eligible if they have substantial US operations. Not only fair but, since the crisis is truly global, probably necessary if the program is to have a chance at working.)

The only scenario that makes any sense is a highly unlikely "Goldilocks" scenario -- Treasury is able to set a price that's just right. This is the condition that Williem Buiter at the FT says is critical.

Prices should be higher than what the banks that own these assets now can obtain in the market, but as far below their fundamental value as is consistent with the survival of these banks. This is both to protect the tax payer and to create the right incentives for future risk taking by the banks. Punitive pricing is therefore essential. If the banks and their shareholders don’t complain loudly about expropriation through under-pricing, then prices are too high.

Buiter thinks a reverse auction would be able to find this just mean -- I and many others have my doubts given the characteristics of the instruments to be auctioned. But accepting for the sake of argument that a market mechanism could be devised to auction the toxic waste, it's a futher heroic assumtion that it will set a Goldilocks price. The prospects of the auction must hurt a little so sound FIs won't be encouraged to participate (they'd rather take the risk of further declines in asset values). But it can't hurt a lot, so wobbly FIs will be eager to participate. With a "Goldilocks price," only the toxic waste that's gumming up the system is removed. Under this unlikely scenario, once the dust settles and the "true" condition of everybody's balance sheets is clear, counterparties can once again deal with each other with confidence, and the regulators can determine which FIs are still in trouble and force their sale or shut them down.

Even under the Goldilocks scenario, the financial system would remain in a precarious state. That's because the proposal doesn't deal with the underlying deterioration in asset values -- the mortgage crisis itself -- nor does it address the ever-increasing liabilities (bond insurance, Credit Default Swaps) that are linked, directly or indirectly, to declining asset values and eroding FI balance sheets. Because it doesn't take a sufficiently systemic approach -- the erosion of asset values and the disruption to the credit markets -- it also isn't set up to deal with contagion into other classes of financial assets such as asset-backed commercial paper (credit card receivables, etc). So even the best case Goldilocks scenario doesn't address the ongoing credit crunch because it doesn't recapitalize the financial system, it only keeps it from collapsing.

The Treasury proposal is a gigantic exercise in temporizing. It's still treating the problem as a liquidity crisis, and as Dean Baker points out, Paulson's track record at temporizing hasn't been stellar -- he's consistently underestimated the scope and intensity of the crisis at each stage. And fundamentally, the proposal doesn't address the heart of the problem -- the continuing downward spiral in the value of US mortgage assets and the permanent damage that has been wrought on global financial institutions.

For $700 billion we should make headway on the core problems. It's evident that we can't rely on voluntary participation by mortgage holders in cleaning up the housing market mess, but the experience of the FDIC with IndyMac suggests that progress can be made when "voluntarism" is removed. Any workable proposal must, at its heart, provide a system that will force underwater mortgages into workouts where feasible rather than continue to flood local housing markets with vacant foreclosures. "Equilibrium" in the housing markets can be found at several levels -- we shouldn't have to wait until we have a total bloodbath in housing to begin gaining traction at a bottom of the mortgage market. Addressing the housing crisis isn't a "Christmas tree" add-on as a sop to Democratic politicians. It should be a core part of any proposal.

Any proposal should also openly undertake the process of recapitalizing or liquidating dodgy FIs at a cost to the managers and shareholders of those FIs. Backdoor recapitalization via generous prices for toxic waste isn't going to solve the crisis of confidence. First, it's non-transparent. It would reward the worst offenders. It would also privilege some FIs over others on arbitrary (regulatory discretion) grounds or by applying eligibility rules that leave out important classes of affected FIs. When combined with other recent regulatory forebearance (e.g. allowing the recognition of "goodwill", exemptions to net capital requirements that have permitted excessive leverage), non-transparent recapitalization will leave much of the financial system fragile and susceptible to further unpleasant surprises.

We need a FDIC/RTC-type hybrid now that would temporarily take over problem FIs, engage in triage, supervise the purchase or recapitalization of those that can survive, and liquidate the others in an orderly fashion.

The proposal should also outline a plan for bringing the Credit Default Swap market under control and for establishing a regulated market in credit derivatives going forward.

If that costs $700 billion -- or even eventually carries a higher price tag -- so be it. But at least we would know where we were trying to get to and how we intend to get there. Which we certainly can't say about Treasury's proposal.

But whatever we decide to spend our $700 billion on, it's important to recognize that we have choices. The real economy may not yet have taken a giant hit from our financial sector difficulties, but it's just a matter of time. We're not going to avoid a significant recession, but attention to the real economy should help us avoid a depression. While addressing the current financial crisis, we need to take real sector effects into account in any program going forward. Here are some thoughts on what our choices might be from Steve Randy Waldman at Interfluidity:

I think we'll only get one shot to set things right by throwing a ton of money at the problem, so we'd better think carefully before we throw it at symptoms rather than causes. Trying to figure this out in a week before Congress goes off to reelect itself strikes me as ambitious. Broadly, my view is that if we are going to legislate, Congress should empower regulators to declare systemically important firms insolvent, write off existing common and preferred, fire incumbent management and unilaterally convert debt to equity as far up the capital structure as they need to go until the firms are unambiguously well-capitalized, with little or no public money involved. Going forward, investors should understand that firms that are too big to fail are too big to be debt-financed, and government enforcement of debt claims against such firms will be limited. If economies of scale are real, equityholders should be glad to reap them. Otherwise markets function better anyway when populated by small actors who compete rather than by behemoths who dominate. The government should not subsidize the many negative externalities of scale. Members of the Pigou Club might suggest that bigness should be taxed and diversity subsidized.

As far as the money is concerned, throw it at infrastructure. Increase worker bargaining power by offering Federally funded retraining sabbaticals for any worker over thirty who decides they want to retool. I'd rather see a new WPA than a new RTC. If it is true that during a debt deflation, the government can spend freely without fear of inflation, let's spend in a way that balances the economy, not in a manner that tries to ratify the imbalances that brought us here in the first place.

There's no such thing as a choice-free bailout. The government's largesse will go to some and not to others, and we have to decide. Don't believe self-styled technocrats who claim that science or the market tells them who deserves the tax- (or inflation-) payers' dollar. In a bail-out, there are winners and losers, and we get to pick. I think we should focus on a simple goal: Restructuring the economy so that the vast majority of Americans can afford a middle-class lifestyle with very little leverage on household or government balance sheets. That may be a radical suggestion in 2008, but our grandparents would have considered it only common sense.

Recommended reading:

Doublas Emendorf, Brookings: Concerns About the Treasury Rescue Plan -- good technical analysis; includes pros/cons of optional approach of Treasury buying equity in troubled firms

Paul Krugman: Doubts about the rescue
No Deal
Authorization for use of financial force

Henry Blodgett, ClusterStock: The critical question about Paulson's rescue plan

Naked Capitalism: Why you should hate the Treasury bailout proposal

Calculated Risk: Some thoughts on the bailout

Interfluidity: Truth and Reconciliation -- on why transparency in pricing and participation is essential to a bailout proposal

David Merkel: Oppose the Treasury's Bailout Plan -- and bring back a true RTC

Robert Reich: The Coming Bailout of All Bailouts Bill -- A Better Alternative

Mary Kane, The Washington Independent: AIG raises bar for action on mortgages: Activists push for mortgage crisis intervention

If Obama wins, the Republicans in Congress will suddenly discover the "fiscal rectitude" religion, and along with the Blue Dogs, will try to water down or defeat every Obama economic policy initiative. We've seen this game before -- Dems have to be the adults, tale the punch bowl away, and clean up Rep messes.



Steve Greenberg, via Crooks and Liars.

Not substantively important, since Obama said nothing surprising in Berlin, but I enjoy well-constructed speeches, so here are a few things I noticed.

In the run-up to Obama's Berlin speech, much has been made of the obvious echos of JFK and Reagan. As the speech is picked over (now and for years to come), all sorts of allusions will be identified, starting with the obvious "walls that cannot stand": "These now are the walls we must tear down."

There are also the familiar little Lincoln motifs -- used less for content than because they are so evocative to our ear, a bit like the King James version for earlier centuries: "now the world will watch and remember what we do here," "form a more perfect union."

What I find continually interesting in Obama's speeches, however, are not just the individual quotations or flourishes, but the way he uses references or allusions to other famous and familiar speeches to structure his own in unexpected ways. His national security speech of July 15 used George Marshall's Harvard speech, but not as a cliched call for another Marshall Plan. Rather, he invoked Marshall as an example of someone who responded with imagination and judgment to a world that presented an entirely new set of challenges -- that changing our "mentality" about our role in the world is as important as any specific policy or Marshall Plan.

Today, a central "structuring" reference comes at the end of Obama's speech. It's not from a speech by an American in Berlin but is equally relevant for the Berlin location because it was from FDR's Four Freedoms speech, delivered in January 1941 when Nazi Germany was FDR's primary concern.

Here's FDR's State of the Union in January 1941:

In the future days, which we seek to make secure, we look forward to a world founded upon four essential human freedoms.

The first is freedom of speech and expression--everywhere in the world.

The second is freedom of every person to worship God in his own way--everywhere in the world.

The third is freedom from want--which, translated into universal terms, means economic understandings which will secure to every nation a healthy peacetime life for its inhabitants-everywhere in the world.

The fourth is freedom from fear--which, translated into world terms, means a world-wide reduction of armaments to such a point and in such a thorough fashion that no nation will be in a position to commit an act of physical aggression against any neighbor--anywhere in the world.

Obama uses the Four Freedoms to wind up his remarks, presenting them as the ideals that both form the basis of American identity and that are shared with the world -- and via his own father, how he personally came to be both a proud American and, echoing JFK's inaugural,* a "fellow citizen of the world." This links back directly to how he identified himself when he began the speech:

I come to Berlin as so many of my countrymen have come before. Tonight, I speak to you not as a candidate for President, but as a citizen – a proud citizen of the United States, and a fellow citizen of the world.

.
And then the Four Freedoms and how they connect to both his personal identity and that of his audience:

>What has always united us – what has always driven our people; what drew my father to America’s shores – is a set of ideals that speak to aspirations shared by all people: that we can live free from fear and free from want; that we can speak our minds and assemble with whomever we choose and worship as we please.

He then segues to reinvoke Berlin's history, which he had earlier described extensively. The Berlin reference hooks the end of his speech back to his introduction of himself to the audience via an echo of JFK's "Ich bin ein Berliner". When Obama says at the outset he is "a fellow citizen of the world", he shows us by the end of the speech that it is the same claim of citizenship that JFK made.

Rather than repeat explicitly JFK's self-identification as a Berliner, Obama gets to the same place at the end of his speech by connecting the Four Freedoms with the world's response to the Berlin airlift:

It is because of these aspirations that all free people – everywhere – became citizens of Berlin.

So the rhetorical connections are:

• Obama via his father: and JFK Four Freedoms = proud citizen of US + fellow citizen of the world and


• Obama via JFK and Cold War generations:Four Freedoms and Berlin airlift = citizen of Berlin

The final formula, linking the opening and concluding paragraphs, is: FDR's Four Freedoms (American ideals and universal aspirations) plus shared historical experience (JFK and Cold War generations in Berlin) plus a partnership for the future (Obama and audience in US and Europe.

Here are the final paragraphs of Obama's speech.

But I also know how much I love America. I know that for more than two centuries, we have strived – at great cost and great sacrifice – to form a more perfect union; to seek, with other nations, a more hopeful world. Our allegiance has never been to any particular tribe or kingdom – indeed, every language is spoken in our country; every culture has left its imprint on ours; every point of view is expressed in our public squares. What has always united us – what has always driven our people; what drew my father to America’s shores – is a set of ideals that speak to aspirations shared by all people: that we can live free from fear and free from want; that we can speak our minds and assemble with whomever we choose and worship as we please.

These are the aspirations that joined the fates of all nations in this city. These aspirations are bigger than anything that drives us apart. It is because of these aspirations that the airlift began. It is because of these aspirations that all free people – everywhere – became citizens of Berlin. It is in pursuit of these aspirations that a new generation – our generation – must make our mark on the world.

People of Berlin – and people of the world – the scale of our challenge is great. The road ahead will be long. But I come before you to say that we are heirs to a struggle for freedom. We are a people of improbable hope. With an eye toward the future, with resolve in our hearts, let us remember this history, and answer our destiny, and remake the world once again.

---

* Given all today's right-wing ruckus over "fellow citizen of the world", here's the quote from JFK's inaugural address:

And so, my fellow Americans: ask not what your country can do for you—ask what you can do for your country.

My fellow citizens of the world: ask not what America will do for you, but what together we can do for the freedom of man.

I don't know what has been more fun to follow over the past few days -- the McCain campaign's scramble to play catch-up with Maliki's suppport of an Obama-esque timetable, or the US media starting to go all-meta on their own coverage of the Obama trip. There are too many gems for a single QOTD, so here are a few highlights.

The first stage of "We're f**ked" is Denial

Even though McCain was given an extra 24-hour news cycle -- the delay in coverage by the NYT and WaPo was, as Steve Benen remarked, journalistic malpractice -- he and his campaign are running around like ham-handed headless chickens. They seem to be stuck in the Denial Stage even though the evidence was clear from the outset that Maliki was serious.

The focus in the media and in the McCain campaign's (various) responses has been on whether Maliki really gave a quasi-endorsement of Obama's "sixteen months" -- the whole walkback nonsense. However, the interview has been on Spiegel's site since Saturday, and in the interview Maliki expresses several times the need for an end-date, the sooner the "more realistic". There could have been no confusion on McCain's staff about the overall thrust of Maliki's position if they read the interview. The "mistranslation" excuse was transparently feeble from the outset.

For all McCain's vaunted international experience, this episode is displaying him as someone who isn't what we might call "agile" at handling an unexpected international curveball. Joe Klein hit exactly what I've been thinking:

I suppose that McCain's stubborn brittleness on this subject isn't news. But his inability to respond to a major change in policy from our Iraqi allies -- the announcement that they can take it from here -- certainly is newsworthy. There are three possibilities:

• McCain doesn't believe the Iraqis can take it from here. (In the most benign reading, he may see this new position as mere domestic political posturing on Maliki's part, which is no doubt part of the truth.)


• McCain doesn't want the Iraqis to take it from here. He still wants long-term, 100 year, military bases.


• McCain doesn't move very quickly to adapt to changing facts on the ground. None of them speak very well of the guy. [emph. added]

I think it's "all of the above" -- but especially the last factor. McCain is so wedded to a particular view of the Iraq War, the GWOT, and the US role in the Middle East, that he can't adapt. If he had had a more realistic understanding of the situation, Maliki's remarks wouldn't have -- or more accurately, shouldn't have -- come as such a bombshell.

The second stage of "We're f**ked" is Anger

Some of McCain's supporters are ahead of their candidate and acknowledging that Maliki appears to mean what he says. But that's not to suggest they're to the Acceptance stage yet. They're getting mad that "our guy" isn't following the script. Rob Farley's been tracking the emergence of the Anger crowd at the Corner.

At 11:38 AM EDT, Rob remarked (echoing a constant refrain of our own Eric Martin):

The conservative media and Right Blogistan have been undertaken to steadfastly ignore any hint that Prime Minister Maliki might and his political allies might have connections with Iran, preferring instead to assert that Iran influences events in Iraq through Sadrist militia and Sunni tribes (!). Given Maliki's statements on withdrawal, I wonder this: How long it will take for an anti-Maliki trope to develop on the American right that concentrates on his Iranian connections?

Ask and ye shall receive! Less than two hours later, Rob noted:

Andrew McCarthy answers my question:

As I've mentioned before, Maliki, of the Shiite Dawa Party which opposed the 2003 U.S. invasion of Iraq in the first place, has long-standing ties to Iran and Syria -- and has expressed support for Hezbollah. The only thing that surprises me about this story is that anyone is surprised.

McCarthy also chides Maliki for being insufficiently grateful for the awesomeness of the Surge. Look for more of this as Maliki fails to walk back his statements...

But as Daniel Larison points out, maybe John McCain is simply too confused to be angry.

McCarthy is entirely right in what he says here, but that raises a couple questions. First, there is the obvious question of why the U.S. is attempting to pursue a strategy premised on limiting Iranian influence in Iraq and the region while actively backing a government that has no intention of limiting Iranian influence in Iraq and very clearly is led by a sectarian party.

[snip]

Even more than creating a political problem for McCain back home, Maliki’s recent statements have revealed both the untenability of a continued U.S. presence in Iraq and the complete incoherence of U.S. strategy in that country.

Serious ouch! And then John Derbyshire added his two cents. Again from Rob:

Shorter Derb:

All of your country are belong to us now.

Verbatim Derb:

We should tell Maliki, loudly and in public, that he owes his job to us, and that further prosecution of our military operations in his country will be conducted with regard only to U.S. interests, as determined in consensus by our established domestic political processes. And if he doesn't like that, he can go to hell.

God, I am so glad that this incident has caused the right to discard its phony interest in democracy promotion...

To be fair to Derb, he's always been a "To Hell With Them" Hawk, so his sentiments should come as no surprise. As he remarked today: "This absurd and insane desire to be loved and admired by foreigners will be the death of this republic." Derb doesn't have to do Denial -- he starts (and finishes) with Anger.

Those "Listening to Commanders on the Ground" C-i-C Credentials

If there was one piece of Conventional Wisdom we've heard for the last week about Obama's Grand Tour it was that the trip was risky but necessary. Obama had to show voters he would be "acceptable" as Commander-in-Chief. Obviously, he wouldn't be better at foreign relations than the tough, seasoned veteran, John McCain, but Obama had to somehow find his way across the "acceptability barrier."

So here's the Photo of the Day (photo released by US Army via Mark Halperin).

As Michael Crowley notes: "Hmmm, Petraeus doesn't look like he's been telling Obama he's a defeatmonger. "

Worse yet for McCain image-wise are these photos paired together by Ben Smith of Politico: "It's not really close," says Ben. Heh, indeed!






And what would be a Circus without Coverage of the Coverage of the Coverage...

Jesse Taylor is back!

Despite the fact that his foreign policy vision has been largely validated in the past week - McCain caught up to Obama on Afghanistan and the aforementioned endorsement by Maliki - the main discussion today and over the past few days has been whether or not the press is covering Obama’s trip too much and whether or not the coverage of them talking about the coverage results in too much (and too favorable) coverage for Obama. It’s a tesseract of inanity - a new fourth dimension of coverage about the coverage of the coverage will soon emerge, with Jessica Yellin invited on to discuss how she talked about her in-depth discussion of the impact of Obama’s trip on the race...without ever mentioning what Obama did, how he did it or who he did it with.

Call it the Fafblogging of the media: CNN is the whole world’s only source for CNN! [emph added]

Now if we only still had Billmon!

This item from Mark Murray at MSNBC's First Read is worth copying in full:

Remember that letter that South Carolina Sen. Jim DeMint (R) sent to Obama -- over the fact that the Foreign Relations subcommittee that Obama chairs hasn't held a hearing on the issue of Afghanistan?

Well, Foreign Relations Committee chairman Joe Biden -- a possible Obama veep pick -- responds to DeMint with his own letter. "As you are aware, under my chairmanship the Foreign Relations Committee has addressed most Afghanistan issues at the full committee level. I believe that this is the best way of ensuring the most comprehensive examination of the complex issues involved, and of ensuring the highest-level Administration participation," he writes.

"On the particular issue of NATO’s mission in Afghanistan, we have held three full committee hearings in the last 22 months... At all three of these hearings, we were fortunate enough to have the expert testimony ... of former NATO commander and Supreme Allied Commander-Europe, Gen. James R. Jones (USMC, ret.). At my request, Sen. Obama chaired the confirmation hearing for our next ambassador to NATO, which he focused on NATO’s mission in Afghanistan."

Biden concludes, "Sen. Obama has displayed great leadership on this issue: he called nearly a year ago for the deployment of at least two additional combat brigades to Afghanistan -- it has since become the accepted position of a wide range of U.S. military officials, including the Chairman of the Joint Chiefs of Staff. I look forward to working closely with him, and with you, on any future Afghanistan hearings that might be held in our committee."

---

UPDATE: And the Pentagon seems to have Obama's back as well. From the AP.

Pentagon leaders on Wednesday signaled a surge in U.S. forces in Afghanistan "sooner rather than later," a shift that could send some units there within weeks, as officials prepare to cut troop levels in Iraq.

Senior military officials are looking across the services to identify smaller units and other equipment that could be sent to Afghanistan, according to a defense official.

Although there are no brigade-sized units that can be deployed quickly into Afghanistan, military leaders believe they can find a number of smaller units such as aviation, engineering and surveillance troops that can be moved more swiftly, said the official, who requested anonymity because the discussions are private.

The moves are expected to happen within weeks rather than months, the official said.

The decisions are being made against the backdrop of shifting priorities for the U.S. military, and were discussed during a meeting Wednesday of the Joint Chiefs of Staff.

Military leaders are weighing requests from commanders in Afghanistan for more troops, aircraft and other assistance. And they are trying to determine the right balance between the needs of the force in Iraq, versus troops in Afghanistan who are facing a Taliban resurgence.

To date, the fight in Afghanistan has taken a back seat to Iraq, which has been the strategic priority. While Iraq will remains the top goal, it now appears the military believes there should be a more urgent emphasis on Afghanistan than there has been.

Cross-posted at American Footprints

To follow up on Armchair General's post on Burns' announced participation in talks with the Iranians and Haggai's comment that this may be following the North Korea multilateral pattern.

One further thought on the mini-"opening" to Iran, especially if the Guardian is right that State is going to get its way finally and be allowed by the White House to open a US interests section in Teheran.

I think the White House has finally become seriously spooked about Pakistan. When Benazir was assassinated, they lost Plan A and there never was a Plan B. They've been treading water while watching things go from bad to worse in both Pakistan's domestic political chaos and in the border areas with Afghanistan. The US doesn't have more troops to put in, and even if there were a few more brigades available, everybody (except Mr "I authored the Surge(TM)" McCain) seems to realize that the military isn't going to solve this problem, it's only a finger in the dike.

Whoever is the new President come January, US-Pakistan policies are going to have to be reworked entirely. The Biden-Lugar economic aid package, which Obama is sponsoring, is just the first step.

But one factor surely is common to any options for dealing with Af-Pak -- keep western Pakistan stable. Which means having cooperative, if not cordial, relations with the Iranians re Afghanistan has become more than just desirable -- it's an absolute imperative.

Bill Varner at Bloomberg reports today on this topic, although it's framed as the sorts of trouble Iran could cause if it were attacked. However, Varner's observations are equally relevant to the options the US faces in adjusting its approach to the Afghanistan-Pakistan gordian knot.

Khalizad is making noises about the potential mischief Iran could make, and US Ambassador William Wood is claiming that Iran is helping arm the Taliban, under the "fingers in every pot" theory of influence. The Iranians themselves are miffed that the US didn't build on their initial cooperation when the US first invaded Afghanistan, so they're not rushing to help the US counter the Taliban. One assumes, however, that the Iranians aren't eager for western Afghanistan to become a Sunni fundamentalist hotbed. So the US objective should be to persuade the Iranians to shift back to their more cooperative mode on the Taliban.

While the world focuses on tensions between Afghanistan and Pakistan 800 miles to the east, U.S. officials keep watch on Iran's expanding presence in Herat and the surrounding province of 2 million people. The region might play a major role if conflict erupts over Iran's nuclear program.

Should Iran's nuclear ambitions spark hostilities, it would use its sway in western Afghanistan as a ``bargaining chip,'' said Afghan-born Zalmay Khalilzad, the U.S. ambassador to the United Nations and former envoy to Kabul. If attacked, Iran ``could make life difficult for us'' in Afghanistan, he said in an interview.

Iran has ``intelligence operatives everywhere, military commanders who work for them'' in the region who could be deployed to stir up trouble, including riots, said Barnett Rubin, an Afghanistan specialist at New York University's Center on International Cooperation.

For now, Tehran's investment of $500 million in the region has helped the U.S. by minimizing the influence of the Taliban extremists who once ruled the country and the sort of violence they have inflicted on southern and eastern Afghanistan. Iran paved half of Herat's streets and 40 miles of highway leading north, built schools and health clinics and partnered with Afghan companies in an industrial park.

``It's not just investments, but also trade,'' said Ali Shah Ahmedi, the 43-year-old manager of Herat's Tejarat Hotel. ``I have Iranian businessmen staying here all the time, coming to buy or sell goods'' such as packaged foods and motorcycles.

Sana, 42, holds forth from his office in the Herat Trade Center, a modern nine-story building of gleaming blue glass that helped inspire residents' nickname for their city: ``the Dubai of Afghanistan.'' A hotel, law offices and a finance company that supports farmers are connected by an Afghanistan rarity: an elevator.

Traffic lights in Herat work, in contrast to the capital, Kabul, so vehicles flow smoothly around the Blue Mosque, an 800- year-old, blue-tiled landmark. Herat is cleaner than Kabul, with more trees and parks, and less dangerous, with fewer visible police and troops.

Ties between Iran and Herat run deep. The city was the capital of 15th-century Persia, and Iran held Herat until midway through the 19th century. Heratis, mostly Sunni Muslims, today speak a dialect closer to the Farsi spoken in Tehran than the Dari used in Kabul.

Predominantly Shiite Iran opposed the Sunni Taliban -- who refused to educate girls when they ran Afghanistan, among other strictures -- as extreme.

After the Taliban were toppled for harboring the terrorists behind the Sept. 11, 2001, attacks, Tehran's government helped the U.S. and the UN begin the political transition that led to Hamid Karzai's election as president.

Iran's leaders feel that contribution wasn't properly acknowledged, said Manouchehr Mottaki, its foreign minister. The slight explains their refusal to help fight the Taliban's current insurgency, he said.

``We limit our cooperation with Afghanistan to helping reconstruct the country,'' Mottaki told reporters at the UN on July 2.

William Wood, the U.S. Ambassador to Afghanistan, said Iran now helps arm the Taliban. Tehran's policy is to ``make everyone a loser'' in Afghanistan, he said in a Kabul interview.

Karzai is ``walking a very fine line'' and doesn't accuse Iran of actively supporting the insurgents, said Humayun Hamidzada, the president's chief spokesman.

``President Karzai believes Iran has a positive role to play in Afghanistan,'' Hamidzada said last week in Kabul. ``We are working with the U.S. and Iran, and don't want to become the battleground for their conflict.''

Iran's presence in Afghanistan will be an issue for the next U.S. president.[No kidding!!!]

I would be astonished if the Bush Administration were able to make significant headway with the Iranians on Afghanistan, even though it's clearly in both nations' interest to cooperate. The calendar is increasingly becoming a tyrant for the Bush Admin. There are too many interrelated regional issues within which the nuclear matters (and Iran's long-term security interests) will have to be addressed, and too few months until the height of the election campaign. It's too hard to break the Iranian relations into discrete pieces -- nuclear, Iraq, Afghanistan, Lebanon, etc. -- because they're so intertwined. So there's really no way to avoid linkage.

The Bush Administration would also have to go a long way to convince the Iranians they should deal with Bush now rather than wait for the new US President. And whoever the elected President is, he's going to want to have his own say in any overall deal with the Iranians.

However, W seems to be heavily invested in "legacy" planning. I expect he'd like to be able to claim credit for having "laid the foundations" for future progress on these issues to mitigate the blame for leaving an unholy mess behind in Af-Pak. Hence his stated intention, as Haggai noted, that "he expected his remaining months in office to 'leave behind a multilateral framework' for dealing with Iran."

It will be interesting to see how far Bush's commitment to his own "legacy" leaves McCain dangling in the wind on the campaign trail.

---

UPDATED:  Another sign that the White House is increasingly spooked by Afghanistan-Pakistan is this AP interview yesterday with an unidentified "defense official." It suggests the intensity of the scramble underway to meet the needs for additional forces in Afghanistan, which Sec Gates and Adm Mullen have been discussing with the press:

Senior military officials are looking across the services to identify smaller units and other equipment that could be sent to Afghanistan, according to a defense official.

Although there are no brigade-sized units that can be deployed quickly into Afghanistan, military leaders believe they can find a number of smaller units such as aviation, engineering and surveillance troops that can be moved more swiftly, said the official, who requested anonymity because the discussions are private.

The moves are expected to happen within weeks rather than months, the official said.

The decisions are being made against the backdrop of shifting priorities for the U.S. military, and were discussed during a meeting Wednesday of the Joint Chiefs of Staff.

No wonder McCain suddenly announced the need for one of his Surges(TM) for Afghanistan on Tuesday.


Cross-posted at American Footprints.

At his press conference yesterday, President Bush assured his listeners that he won't do financial sector bail-outs.

President Bush also wanted fast action on his latest proposal to rescue Fannie Mae and Freddie Mac in Congress. He strongly endorsed Treasury Secretary Henry Paulson's plan but asserted definitively that the two companies would continue to be held by private investors. Bush also rejected the notion that the government would bail out any private enterprise.

But, but... government support for Fannie Mae and Freddie Mac that doesn't wash out current equity holders is... ummm, how shall we say this... exactly what a "bail-out" is. If we provide financing to keep Fannie and Freddie up and running but leave the equity holders in place, when their shares are underwater, we are bailing them out!

The best summary I've seen of the Fannie/Freddie situaton -- history and current problems -- is by Tanta at Calculated Risk. As they say, read the whole thing. Looking at the core function of the GSEs (government sponsored enterprises) -- which is to provide liquidity to the mortgage origination markets -- she explains:

They have always been about recycling lending capital and taking long-term fixed interest rate risk off depository (and eventually non-depository) lenders much more than about merely absorbing credit risk. This goes against the grain of much current media over-simplification of "securitization" of mortgage loans that sees laying off credit risk as the main or even the only point of selling loans. The GSEs do take on the credit guarantee obligation of the securities they issue, but nobody sells loans to the GSEs just to offload credit risk--in fact, more than a few lenders work hard to negotiate contracts with the GSEs that leave quite a substantial part of the credit risk with the original lender: recourse agreements, indemnifications, servicing options that put a lot of the cost of default on the seller/servicer, not the GSE. They have historically done this because the credit risk of GSE-eligible loans has always been modest, but the benefits of getting 30-year fixed interest rate loans off your balance sheet has been substantial.

For decades, I have believed that Fannie and Freddie either should not have been privatized or should have been more strictly reined in. They serve, and must continue to serve, a critical function for US (and gobal) debt markets. But they're not ordinary financial institutions. They are public utilities which shouldn't be managed, as private financial institutions are, primarily for the benefit of the holders of their capital base (as currently structured, common and preferred shareholders) and their management.

The backing of the Federal government is the sine qua non of these institutions' existence and successful functioning. Without that implicit guarantee, they would never have fulfilled their public roles -- providing reliable liquidity to the mortgage markets in good times and bad, and setting widely-adopted standards for loan origination and servicing, which made the development of a healthy mortgage-backed securities market possible in the first place.

In recent years, managers and shareholders of the GSEs grew sloppy and forgetful about the real nature of these institutions. They forgot the instiutions were public utilities and that they had a duty to protect the implicit guarantee which made their business possible. Instead, they adopted the same expectations as typical corporate management and equity holders, with a focus on growth, retaining market share in a rapidly growing and increasingly risky market, and pumping up earnings, in order to justify huge executive compensation packages and higher share prices. They also had a lousy corporate governance structure, about which critics on both left and right have complained for years.

When housing market innovations started leaving them behind, instead of sticking to their knitting, they went running to Capitol Hill, where they enjoy enormous power on both sides of the aisle. They were allowed to stray into parts of the housing bubble where they didn't belong while simultaneously ignoring and taking advantage of the implicit government guarantee. Their behavior helped to magnify the overall size of the housing bubble and delay its bursting. (See Tanta for a nice summary of recent history.)

Today, the leverage ratio of Fannie's equity to on- and off-balance-sheet liabilities is, depending on which measure one uses, between 68:1 and 128:1. By comparison, leverage for a healthy private financial institution is likely to be in the range of 10:1 to 20:1, depending on what lines of business it is in. The implications of that excessive leverage are spelled out in a restructuring plan proposed by hedge fund manager William Ackman of Pershing Square Capital Management. (See attached pdf, which is an excellent view of the situation, regardless of what you think of Ackman's proposed solution). As Christine Richard of Bloomberg explains:

Ackman, 42, has his own plan that would see Fannie Mae raise about $86 billion in capital by giving investors in $750 billion of senior unsecured notes 90 cents on the dollar in debt of a new company, with the balance in equity. Investors in Fannie Mae's $11 billion of junior debt would get warrants, while common and preferred shareholders would get nothing, according to Ackman.

``We've not yet heard Secretary Paulson's plan but it would be a grave error for the government to invest in the equity of Fannie Mae and Freddie Mac as they are currently capitalized,'' Ackman, who oversees $6 billion at Pershing Square Capital Management in New York, said in a telephone interview.

[snip]

``The good news is that Fannie Mae has all the capital that it needs,'' Ackman said. ``It just has the capital in the wrong form with too much debt and not enough equity.''

Ackman also suggested the government put in place a stand-by purchase commitment for the new common stock for three years. The government is unlikely to be asked to buy any shares as there would be market demand for equity in the better-capitalized companies, Ackman said.

Although much has been made of the declining quality of the GSEs' portfolio, Ackman's plan shows how the structure of their balance sheets is at the heart of their current difficulties. Even if they hadn't wandered into high risk business, given how highly leveraged they are, Fannie and Freddie would today be nearing the point where the government guarantee would be called into play simply because the drop in housing prices nationally has been so large. The rule of thumb for Fannie's plain vanilla mortgage financing is a minimum 80% Loan to Value (LTV) ratio. That means, in some regions of the country, a large number of mortgages will now exceed the current value of the underlying real estate even if they continue to be performing. That's not the "fault" of the GSEs and doesn't suggest they should stop doing business -- as the housing sector continues to collapse, they are needed now more than ever. Being able to ride through periods of large drops in underlying asset values and growth in non-performing assets is one of the reasons why we have the GSEs in the first place.

In effect, the GSEs are designed to be "bailed out" by the government when market conditions demand. When the government steps in, the GSEs require restructuring and new capital, with existing equity being heavily diluted if not wiped out. That didn't really matter when the government owned the institutions. But when they were privatized and the equity in the GSEs was sold to private investors, the share price should have reflected the risk of dilution if the goverment's implicit guarantee was called. Yet that wasn't the case -- the GSEs behaved, and the market priced their shares, as if there was no risk that the guarantee would be necessary even though their balance sheets were built on the basis of the implicit guarantee. The recent plunge in their share prices is simply the market finally pricing the GSE equity to reflect the central fact that defines their business.

As many have observed today, yesterday's prohibition by the SEC against naked short positions in the shares of the GSEs is either simply political theatre or a case of the panics. (See e.g., Dean Baker, Dealbreaker, Felix Salmon). There are other ways than naked shorts for investors to bet, so the objective of the move is unclear. In any event, even if it Cox's game slows the price decline, it isn't going to make those shares worth any more than they already are, which fundamentally is zero.

The only thing which allows the shares to retain any market value is the political optics against "nationalization" of the GSEs. Together with President Bush's comment, the SEC's concern with the declining market price of GSE shares suggests that, although Treasury Sec Paulson hasn't described the conditions under which the government would provide an equity injection, nonetheless a figleaf of private equity will have some sort of role.

By trying to discourage a fall in share price, the government seems to be encouraging investors to believe in fairy tales -- that a restructuring may not be necessary or that current equity holders may not get washed away entirely in the restructuring-to-come. But if leverage ratios are to be brought down to somewhere closer to earth, new private equity won't come in without the existing equity being washed out. If existing equity holders retain a place in a new capital structure, it will be only because, in effect, the government has provided equity financing at rates far below what the private sector would demand.

Contra President Bush, there's going to be a bail-out. The only questions are how and how much. Retaining a role for private investors in the GSEs as Bush and Cox appear to suggest -- without restructuring the roles of the GSEs and their balance sheets -- is the very essence of the worst kind of government bail-out. Privatize the profits and socialize the costs.

Cross-posted at American Fooprints.

While I'm on the topic of how online content can engage and enrich a journalist's traditional product, the Online Journalism Review at the Annenberg Center has a terrific interview with a Tacoma, Washington sports reporter who covers the Seattle Seahawks. Some highlights of the Q&A with Mike Sando:

OJR: Do you modify your voice when writing for the blog? And if so, how hard is it for a newspaper reporter to adapt to blogging?

Sando: . . . [T]he first thing reporters need to do is lighten up and realize that the blog is not the newspaper. If a columnist somewhere makes an off-the-wall proposal that has people talking, or if you want to throw out some analysis on the topic of the day, the blog is the place to do it. In that sense I have definitely modified my voice for the blog. That was a little tough to do initially, but after running the blog for a while, I'm figuring out what works and where I want to go with things. I used the word "analysis" and not "opinion" because it's important for me to remain true to my identity as a journalist (that probably sounds higher-minded that I'd prefer, but hopefully the point holds up). [note: washingtonpost.com should probably stress the "analysis" category rather than stick the "opinion" label on their non-traditional-reporting online product, such as Dan Froomkin's daily White House review. It would help them avoid the Froomkin Froofraw (Joel Achenbach's term) they got into with the left blogosphere over Deborah Howell's swipe at Froomkin's "liberal" quasi-blog -- that supposedly needed to be distinguished from the paper's political news coverage, even though their reporters often provide "analysis" stories, and required a "conservative" countervoice. Followed by the infamously aborted experiment with a red-meat conservative blogger, Ben Domenech.]

OJR: What reporting and information do you put in the blog that you can't or won't put in your newspaper stories?

Sando: Here's a recent example: The Flint, Mich., paper published a story about former Seahawks receiver Daryl Turner, who enjoyed some productive years in the 1980s before disappearing in a haze of drugs and alcohol. It wasn't something we needed to chase for the paper, but I turned it into a quick blog item. There are numerous other examples. The blog allows more room to discuss (and sometimes debunk) rumors, too.

OJR: Is there a difference in the feedback that you get for what you do on the blog versus what you do for the paper?

Sando: I get way more feedback about the blog. In years past, I might answer 15 emails asking the same thing. Now I address the matter once on the blog and that's it; my time spent answering emails has almost disappeared. Along the same lines, having your own blog is sort of like hosting a radio show. It's more about the host, whereas people don't pay much attention to non-columnist bylines in the paper. For years I have written 350-500 stories per year for the paper, only to have people recognize me as the guy who spends 30 minutes a week during the NFL season as a guest on a sports-radio show. It's not that the radio station had more listeners than we had readers; rather, it's that the listeners were listing to me, whereas the newspaper readers were merely reading my stories. This is an important distinction. Blogs make reporters more relevant as individuals. This would seem to be good for reporters, long term.

OJR: What is the editing process for your blog, if any?

Sando: I post directly to the Internet. A blog with filters is not much of a blog, in my view. Immediacy is very important. The News Tribune trusts my ethics and my judgment. The paper also realizes, shrewdly, that online standards differ from print standards. This doesn't mean that anything goes in a blog. Basic journalism values still apply and management has a responsibility to enforce them wherever its name appears. It's just that reporters have more freedom on a blog.

OJR: What do you see as the potential risks for a newspaper reporting in blogging? What have you done to try to overcome them?

Sando: I think a blog will expose a poor reporter more quickly, while allowing a good reporter to flourish more demonstrably. Also, the comments section of a blog will test a reporter's restraint. I've spent a fair amount of time maintaining the comments section by discouraging crassness, hot-temperedness and overall idiocy.

For some time now, I've been a fan of the way the Washington Post's online presence has been evolving. Last September, when the New York Times introduced TimesSelect and moved various features, including its columnists, behind the paywall, it was clear that the two companies were pursuing very different business models. And I speculated that those divergent business models were likely to produce very different models of a "news organization."

The Washington Post Company and washingtonpost.com are continually engaged in product innovation -- using technology to redefine "news" as dynamic, conversational, contextual content which is networked with related content across the internet (especially the blogosphere, but also including their other properties, Slate and Newsweek), and linked with their other media properties -- now including their new radio station. By contrast, the NYTimes is focusing on production/distribution innovation of their existing product -- using technology to improve the timeliness, relevance to the customer, and revenues from their traditional product, tweaked for online capabilities such as video. As I explained in September:

The overall impression from [washingtonpost.com's] changes is that content is growing more dynamic -- no longer simply the electronic publication of a series of static stories, or photos or graphics. Each Post page becomes the center of, or portal to, a constantly changing network of relevant linky goodness.

The changes are also increasingly reflected in the approach reporters are taking to their respective "beats." Certainly, the "stories for publication" remain fixed by the size, form and flow that are dictated by the conventions of newsprint distribution. In that domain, the Post competes with other news outlets in its attempts to tell news stories better and, in its particular government-related specialties, with greater coverage. But the news stories are being enriched with complementary content by those same reporters, who are bringing more than simply extra information.
[...]
If the printed news story is history's first draft, a permanent record however partial of "what happened," the new types of complementary content implicitly acknowledge the limits of that permanent printed record. The stories are shown to have added layers. The complementary content also celebrates the fact that the stories are constantly evolving -- evolving not simply in the sense that tomorrow's events will overtake today's or that we will have more information about those events in the future, but that their context and meaning are always in the process of morphing as they become part of broader conversations.

Washingtonpost.com has now introduced another example of precisely the sort of product innovation I described, called PostGlobal. It's potentially very good news for those of us who focus on US foreign relations.

David Ignatius (WashPost) and Fareed Zakaria (Newsweek and his TV show, Foreign Exchange) will host roundtables on various timely issues. The responses will come from their stable of about thirty editors and journalists from around the world, their "PostGlobalBloggers." Readers have a thread for their own comments. And Ignatius and Zakaria will provide some sidebar notes and roundups in their "Editor's Inbox" blog. Here's how the site describes what they're trying to do:

PostGlobal is an experiment in global, collaborative journalism, a running discussion of important issues among dozens of the world's best-known editors and writers. It aims to create a truly global dialogue, drawing on independent journalists in the countries where news is happening -- from China to Iran, from South Africa to Saudi Arabia, from Mexico to India.

At least twice a week, we'll post a question then solicit responses from members of our diverse network of experts, whose combined views, we believe, will reflect what the world thinks about important issues more quickly and completely than would those of any single commentator. We will also post comments on the question from readers around the world, highlighting the most interesting.

As news breaks, PostGlobal will ask leading journalists to offer quick insights in our "Editor's Inbox" area. Look here for assessments of the latest stories and for links to useful resources for making sense of what's happening. We're also talking with potential partners about additional features that will allow PostGlobal to pull together and analyze information from around the world.

The first question, posted on Wednesday, was "If Iran becomes the dominant regional power in the Middle East, the region will be safer and more stable. True or false?" The True/False framing isn't all that interesting -- not surprisingly, it produced more "false" than "true" responses from the journalists. Far more interesting were the varied perspectives about the dynamics of the Middle East from journalists from around the world -- including Japan, India, Mexico. They had distinctive views on the prospects for Iran becoming "the dominant regional power," and just what that might mean. Good exercise in revisiting unstated assumptions that underpin a lot of what passes for debate in the US.

The readers' comments were also interesting and, as Ignatius noted in his roundup post today, "in many cases adding a dimension you would not find sitting around a discussion table in Washington." Readers who don't parrot the conventional wisdom of Washington foreign policy elites -- who woulda thunk?

As a further example of the potential for enriching content and conversation, Ignatius' first "editor's inbox" post broadened the discussion by asking "what would Kissinger do"? -- and linked to two documents detailing Henry Kissinger's secret diplomacy with China, which have just been released by The National Security Archive. A lovely reminder of just what a piece of work was Henry the K. And just how far the Bush Admin has moved away from anything resembling strategic thinking and effective diplomacy, even after its supposed return under Rice.

Today's question is: "Should the U.S. and other countries send representatives to the G-8 counter-summit?" (being held by some Russian "liberal dissidents" such as Gary Kasparov at the same time as the G-8 summit in St Petersburg in July). Wonder of wonders, Masha Lipman actually provides a thoughtful response with considerable context for understanding the issue. Wish she'd bring the same nuance to the stuff she produces for Fred Hiatt and the WashPost op-ed pages! That suggests that this more conversational format -- with Ignatius and Zakaria as sponsors -- may actually be as liberating for the opinion-peddlars as for readers and commenters.

One of the reasons why the Post's "global view" experiment may work is that, rare for American pundits, Ignatius and Zakaria both can put themselves in the shoes of non-Americans when looking at US policy and actions. Admittedly, neither has positioned himself as a contrarian, but rather as a mainstream observer whose insights don't fit neatly within the conventional wisdom. I fault both of them for timidity -- for sometimes not extending the logic of their observations to more forcefully challenge US policy. But it's refreshing that they aren't simply a part of the echo chamber on either side of the US political debates. And here's hoping that the voices they assemble  will expand the views available to those debates.

So back to the difference in business models between the WashPost and the NYTimes, and what that may mean for redefining the relation between traditional print and online media. Here's my speculation from nine months ago.

I expect the difference in the two approaches will in the long run have an impact on the content of the two newspapers and ultimately their philosophy of what it means to be a news organization. The NYT proposes to continue to "deliver" its "product." The Post, by contrast, is becoming a portal to a dynamic network of content, only a portion of which is home-grown. But by placing its own content at the heart of the portal and letting its home-grown content interact both with other Post-produced content and with content produced by others, the Post is pursuing a far different model than a classic portal, which aggregates content produced by others. In the process of distributing that home-grown content via the portal, the Post's own way of producing content, and the content itself, will continually be changed or enriched by the interaction with other content and content producers. Maybe, if Eric Nelson is right, the process may even produce added insight from Post reporters on their blogs, or from the commenters or trackbackers or Technorati-linkers, even if they're not named Friedman, Dowd, Brooks, Tierney, Kristoff or Krugman.

Very, very different bets. The NYT's business model is easier to discern than the Post Company's business model -- which clearly incorporates not just the Post but its other media properties. But then again, the NYT's model is easier to understand because it's basically defensive -- do better, whether in terms of quality vis a vis competitors, advertising revenues or satisfying their existing customer base, with their current newspaper business. The Post is, bit by bit, devising a new type of multi-media news business.

The new Ignatius/Zakaria joint venture appears to fit squarely within that prediction. I wish it great success!

P.S. -- While we're on the topic of media, the Huffington Post (NOT my favorite site) has a new section/portal that's devoted to the media, Eat the Press. It's an aggregator, blog and linkroll that's a bit of cross in style/content between Romenesko, Media Matters, CJR Daily, Jeff Jarvis and the Guardian's media section. If you like tracking the nexus of media as a business, politics, and tech, it looks promising.

[cross-posted at american footprints]