10/13/08

Last week it became apparent that only a unified international response can stop the global credit crisis.  This weekend, a coordinated approach was finally crafted after meetings of the G7, IMF, World Bank, European Union and other international organizations.  The international infrastructure of alliances and institutions that was set up after World War II played a crucial role in helping forge a strategy which, by infusing capital into the banking system and guaranteeing interbank loans, has at least for the moment buoyed the markets.

The United States has been the world’s financial superpower for decades; it was the engine for creating global financial institutions 50-plus years ago, the driver behind opening global financial markets in recent decades, and the trigger of the current global crisis.  Yet the U.S. was a follower, not a leader, in forging an innovative response.  Just three weeks ago, senior Administration officials were scoffing at Democrats’ proposals to have the government take ownership stakes in banks. Yet that approach is at the heart of the British approach adopted globally this weekend, infusing capital into banks in exchange for equity.

The Bush Administration, it appears, kept on the same ideological blinders that have undermined American leadership, power and prestige over the past eight years.  It is hard to imagine how Senator McCain would reverse the trend.  His proposals to create a new “League of Democracies,” unpopular with even our closest allies, would undermine the global forums that are responding to this crisis, and alienate global actors such as Russia and China who, democracies or no, have a role to play.    McCain has in the past derided many of our closest allies with his belligerent rhetoric – especially Germany and France.  He would continue the same ineffective international and economic leadership which has characterized the Bush administration and which we can’t afford during this time of economic uncertainty.

After weeks of instability, a global response to the worldwide financial crisis is beginning to take shape.  “European leaders agreed Sunday on a coordinated rescue plan to guarantee inter-bank lending, inject cash into the banking sector and take other measures to beat back the crisis caused by the global financial meltdown.  At an emergency summit in Paris on Sunday evening, the leaders of the 15 nations that use the euro currency announced a Europe-wide plan to guide and coordinate packages that will be announced by national governments starting today.  The leaders pledged to work together to prop up banks whose credit activities have been all but frozen in recent days, trying to send a strong message of unity and action before financial markets open today.”  Meanwhile, U.S. officials are “assembling a ‘toolkit’ of methods to implement the program, including investing money directly into banks and buying individual mortgages from them.” [LA Times, 10/13/08. Washington Post, 10/13/08]

International institutions have facilitated a coordinated international response, playing a stabilizing role amidst economic turmoil.  From the G7 to the IMF and World Bank to the European Union, international organizations met this weekend in efforts to curb the current global financial crisis.  After individual countries attempted to deal with these problems, there has finally been a recognition that the global markets are so interconnected that only a global response can be effective.  Dominique Strauss-Kahn, the Director of the IMF said, "We have now a comprehensive response to the crisis, and I think that the market will reflect it."  As a result of this weekend’s meetings “Asian stocks and U.S. index futures advanced in early trading today on news of the parallel approaches taken by the U.S. and European nations. Investors are eager to see cooperation because even if markets perceive that the situation with European banks is improving, those institutions are so closely linked to their U.S. counterparts that continued pessimism about American banks could undermine European governments' efforts.” [LA Times, 10/13/08. WSJ, 10/13/08]

In the age of American capitalism, global leadership during the economic crisis has come from elsewhere.  The contours of the global response to the world’s financial instability is notable in part because the consensus plan appears to have originated with the UK government, instead of the U.S.  “The sweeping measures began early Monday as Britain pledged to spend billions in taxpayer money to shore up battered banks. The British Treasury said the initial steps could be worth $64 billion to three banks. In effect, the moves mean the partial nationalization of those institutions _ the Royal Bank of Scotland, HBOS and Lloyds TSB.”  “As recently as Sept. 23, senior officials had publicly derided proposals by Democrats to have the government take ownership stakes in banks.  The Treasury Department’s surprising turnaround on the issue of buying stock in banks, which has now become its primary focus, has raised questions about whether the administration squandered valuable time in trying to sell Congress on a plan that officials had failed to think through in advance.”  The Bush administration’s inability to lead the globe has been evident for the past seven years.  It was most evident during the invasion of Iraq but has been evident in other critical issues such as crafting an international response to global warming.  The financial crisis is simply the latest example.  [NY Times, 10/13/08.  NY Times, 10/12/08]

John McCain’s treatment of our international partners diminishes our ability to act globally and hurts our position as a world leader. McCain has said that the G8 should become “a club of leading market democracies: It should include Brazil and India but exclude Russia.” McCain would also exclude China from this expanded G8.  In the run up to the war in Iraq John McCain charged, “that the [NATO] alliance is failing the test because of the ‘flawed calculations’ and ‘vacuous posturing’ of Germany and France.” He called these two partners an aging '40s actress "still trying to dine out on her looks but doesn't have the face for it,”  and a “Rip Van Winkle . . . lack[ing] the political courage and cooperation with its allies on the question of Iraq.” McCain has even refused to say whether he would met with Spain’s Prime Minister, José Luis Rodríguez Zapatero.   This is hardly the language of a leader looking to work with international partners to solve the serious challenges of our time. [John McCain, 2/13/03. NY Times, 9/30/08. Reuters, 10/15/07. Huffington Post, 9/18/08]

Quick Hits

The United States removed North Korea from its list of state sponsors of terrorism, with criticism from Senator John McCain but support from Governor Palin. North Korea resumed the disabling of its nuclear reactor, and permitted U.N. inspectors to return.  South Korea is considering increased cross-border projects with North Korea.

Returning to Afghanistan from Washington, DC, General David McKiernan rolled back “too many” pessimistic reports about Afghanistan, saying that “we are not losing” and “we will win,” while continuing to push for increased troop levels.

The U.S. and Iraq are getting near a “final draft” of the security agreement.  The commander of U.S. forces in Iraq, General Ray Odierno, said that Iran has been trying to undermine the deal.

Iraqi Prime Minister Nouri al-Maliki gave an extensive interview to the Times of London, saying that he does not enjoy his job, and that should the SOFA agreement fall through, U.S. forces might have to begin withdrawing immediately.

Car bombings in Mosul and Baghdad killed at least 13.  The Mosul attacks by Sunnis targeted Christians, leading to the passage of new security measures to protect the minority population.

Fighting between government forces and Taliban militants killed 15 in the tribal areas of Pakistan.

After Canadian Prime Minister Stephen Harper dissolved parliament last month, Canada will likely have another minority government following the elections tomorrow.

The financial crisis hurts Russian efforts to become a “financial powerhouse” and threatens Prime Minister Vladimir Putin’s legacy.

A new report criticizes the TSA for failing to track the security passes and uniform of former employees.

The Chairman of the Joint Chiefs called for all troops returning from combat, from privates to generals, to be screened for PTSD.

Senator John McCain’s campaign staff includes lobbyists who worked for foreign clients, including Christian Ferry, who worked for Rick Davis, and lobbied for pro-Russian factions in Ukraine’s 2006 elections.

New York Times columnist Paul Krugman won the Nobel Prize in Economics.