May 29, 2009

By Michael Gerson

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Page Printed from: http://www.realclearpolitics.com/articles/2009/05/29/entering_the_trap_96716.html at May 29, 2009 - 10:06:26 AM PDT

Assignment: Ask a question that you need assistance with and answer a question submitted by another student for each chapter in Unit IV.

Assignment: Ask a question that you need assistance with and answer a question submitted by another student for each chapter in Unit IV.

Assignment: Ask a question that you need assistance with and answer a question submitted by another student for each chapter in Unit IV.

Assignment: Ask a question that you need assistance with and answer a question submitted by another student for each chapter in Unit IV.

Assignment: Ask a question that you need assistance with and answer a question submitted by another student for each chapter in Unit IV.

Republican Senator Cites Policy Disagreements As Congress Prepares to Vote on Stimulus Plan

By Anne E. Kornblut and Michael D. Shear
Washington Post Staff Writers
Friday, February 13, 2009

Saying he “made a mistake,” Republican Sen. Judd Gregg withdrew yesterday as the nominee for commerce secretary, dealing a fresh blow to President Obama’s quest to fill out his Cabinet and dramatically undercutting his efforts to forge a new bipartisanship in the capital.

Gregg said that he had simply lacked foresight and that he shouldered the burden of the decision entirely. “I should have focused sooner and more effectively on the implications of being in the Cabinet versus myself as an individual doing my job,” he said at a news conference on Capitol Hill.

He cited concerns about Obama’s economic recovery plan and the administration’s intent to have the next census director report to senior White House officials as well as the commerce secretary.

The timing of Gregg’s communication with the White House about his decision was murky through much of the day, as the president’s aides scrambled to revise their sometimes conflicting statements about when Obama was notified. Returning to Washington from Springfield, Ill., Obama told reporters on Air Force One that he learned just yesterday of Gregg’s decision. He later clarified that he had spoken with the senator from New Hampshire a day earlier but “wasn’t sure whether he’d made a final decision.”

The episode underscored how burdensome Cabinet selection has become for the new administration, which has watched nearly half a dozen of its top appointees withdraw or face embarrassing scrutiny over the past several weeks. The slip-ups have caused the White House to revamp its vetting process and have slowed down confirmations for nominees already in the pipeline.

And now Obama is left with two key openings — at the departments of Commerce and Health and Human Services — and more questions about his personnel choices.

Gregg’s withdrawal comes as Congress prepares for final passage of a $789 billion stimulus package; Obama previously got no Republican votes for the legislation in the House and only three in the Senate.

Senior Obama officials portrayed the latest personnel debacle as reflecting badly on Gregg alone, insisting they are still on course to change the tone in Washington and implement the president’s policies. But aides acknowledged that it is now clear that Obama has not been rewarded for reaching across the aisle, and they said he feels no imperative to replace Gregg with another Republican.

Gregg’s confirmation would have given Obama more Republican Cabinet members than any Democratic president in history. Obama himself wasted no time making clear that Gregg was responsible for first seeking, and then rejecting, the position, despite efforts to accommodate him.

“It comes as something of a surprise, because the truth, you know, Mr. Gregg approached us with interest and seemed enthusiastic,” Obama said in an interview yesterday with the State Journal-Register in Springfield. “But ultimately, I think, we’re going to just keep on making efforts to build the kind of bipartisan consensus around important issues that I think the American people are looking for.”

Though the news came as a shock to the political establishment, White House officials said they had an inkling of Gregg’s unease. Chief of Staff Rahm Emanuel said Gregg called him Monday to say he was having second thoughts. Obama met with Gregg privately at the White House on Wednesday, according to Emanuel, and the three-term senator said he was leaning toward dropping out.

Gregg made the decision public yesterday afternoon, becoming the second Commerce Department nominee in two months to withdraw from consideration.

“It’s better we discover it now than later,” Emanuel told reporters last night. Asked what had motivated Gregg, the chief of staff replied: “I’m not going to play psychologist or get into his head.” Gregg and administration officials alike said there had been no vetting issues involved.

The timing was unfortunate for Obama, who had sought to focus on promoting his economic recovery plan yesterday, as well as to celebrate the 200th birthday of Abraham Lincoln, whose spirit of unity Obama has claimed as his own.

As the news unfolded, Obama was on his way to a dinner in Lincoln’s honor in Springfield. White House officials rushed to contain the fallout, pointing to Gregg’s seemingly peculiar decision to accept a job that would, by definition, require him to adhere to the positions that he later claimed drove him away. Administration officials rejected the idea that the size of the economic stimulus package, or other Democratic policies, had alienated Gregg.

In his statement, Gregg said that “on issues such as the stimulus package and the Census there are irresolvable conflicts for me. Prior to accepting this post, we had discussed these and other potential differences, but unfortunately we did not adequately focus on these concerns.”

“I think what ended Judd Gregg’s hope of and desire of being the commerce secretary wasn’t anything any Democrat said or did, but what Republicans said and did,” a senior administration official said, speaking on the condition of anonymity. Democratic officials said they believed Gregg would have potentially faced rough questioning from Republicans during his confirmation hearings as they worked to find the GOP’s footing as an opposition party.

The withdrawal raised new questions about whom Obama can safely choose for the commerce spot. A senior official said the president was not quite back at ground zero in the selection process. Still, there were no obvious alternatives.

After losing New Mexico Gov. Bill Richardson (D) and then Gregg, Obama could turn to Symantec chief John Thompson, a Silicon Valley executive. But as a wealthy businessman, Thompson could have complicated finances, a situation Obama might want to avoid after the tax problems that have plagued other nominees.

Tax issues felled his pick to lead Health and Human Services, former senator Thomas A. Daschle (D-S.D.), and he has yet to announce a replacement.

Asked whether Obama had suffered a blow in his efforts to recruit Republicans, White House press secretary Robert Gibbs said he had not. “I’m standing in East Peoria with Ray LaHood,” Gibbs said by phone, referring to the Republican transportation secretary.

Nonetheless, Gregg’s withdrawal sharpened the already palpable sense in Washington that Obama’s promise of a new era of bipartisanship is seriously faltering. Just days after his historic inauguration, Obama held an unprecedented pair of closed-door meetings with Republicans on Capitol Hill — meetings that, despite the kind words from GOP lawmakers that followed, yielded no results measured in votes.

By the time the president’s stimulus package passed the Senate this week, all but three GOP members of Congress were lined up against it, complaining furiously that Obama and his allies were forcing a bloated, liberal bill down their throats.

“Despite our repeated attempts to work with President Obama and the Democrat Majority, Speaker Pelosi has refused to meet with us, or even include us in key negotiations, choosing instead to stick with a pork-filled bill that even members of her own party do not support,” said a statement from Rep. Eric Cantor (R-Va.), the minority whip.

Obama and his top aides tried furiously all week to rebut that cha rge. In his prime-time news conference Monday, the president said his efforts at bipartisanship were “designed to try to build up some trust over time.”

Staff writers Alec MacGillis and Michael A. Fletcher contributed to this report.

WASHINGTON — House and Senate leaders on Wednesday struck a deal on a $789 billion economic stimulus bill after little more than 24 hours of rapid-fire negotiations with the Obama administration, clearing the way for final Congressional action later this week.

The package of spending increases and tax relief, intended to spur an economic recovery and create jobs by putting money back in the pockets of consumers and companies, ended up smaller than either the House or Senate had proposed.

Many Democrats would have preferred a larger bill, but agreed to pare back, including cuts to favored education and health programs, to win three crucial Republican votes in the Senate.

“Legislation is the art of compromise, consensus building, and that’s what we did,” the Senate majority leader, Harry Reid of Nevada, said in announcing the accord.

The House was poised for a final vote as early as Friday, with the Senate to follow, clearing the way for President Obama to sign the bill by Monday. The White House is considering a prime-time bill signing ceremony, and on Wednesday asked the television networks if they would air the event.

In a statement, the president thanked Congress for agreeing to a measure that he said would save or create 3.6 million jobs.

“I’m grateful,” Mr. Obama said, “for moving it along with the urgency that this moment demands.”

The deal reflected a calculated gamble by Mr. Obama in the first weeks of his term. To win Republican votes, the final stimulus package is considerably leaner than what many economists say is now needed to jolt the economy, given its grave condition.

But it is unclear if Mr. Obama will be able to claim credit for bringing change to Washington by winning bipartisan support for his first major piece of legislation. Not a single House Republican voted for the bill when it came to the floor two weeks ago, and despite many compromises in the Senate, only three Republicans came on board.

The final bill includes $507 billion in spending programs and $282 billion in tax relief, including a scaled-back version of Mr. Obama’s middle-class tax cut proposal, which would give credits of up to $400 for individuals and $800 for families within certain income limits. It will also provide a one-time payment of $250 to recipients of Social Security and government disability support.

House Democrats, angry over some cuts, particularly for school construction, initially balked at the deal and delayed a final meeting on Wednesday between House and Senate negotiators.

Democratic officials said Speaker Nancy Pelosi felt that Mr. Reid went too far by announcing a deal before it was vetted by her office and discussed by House members in an emergency caucus meeting, setting off the last-minute flare-up.

Ms. Pelosi said at a news conference that the delay helped House Democrats win some final concessions, including an agreement to let states use some money in a fiscal stabilization fund for school renovations. “There is no question that one of our overriding priorities in the House was a very strong commitment to school construction,” she said. “That’s still in the bill.”

But they soon relented and the meeting got under way in a packed Lyndon B. Johnson Room on the Senate side of the Capitol.

Despite the show of pique, for Democrats the stimulus bill is the most prominent display yet that they now fully control Washington. Their ability to push the package forward represented a turnabout from years of losing battles under President George W. Bush. For Republicans, it underscored the limits of their diminished ranks.

Even trimmed to $789 billion, the recovery measure will be the most expansive unleashing of the government’s fiscal firepower in the face of a recession since World War II.

And yet it seemed almost trifling compared with the $2.5 trillion rescue plan for the financial system — a combination of loans to banks and incentives to bring private capital into the banking system — announced on Tuesday by Treasury Secretary Timothy F. Geithner.

Although the final legislative language was not immediately available, lawmakers said the bill contained more than $150 billion in public works projects for transportation, energy and technology, and $87 billion to help states meet rising Medicaid costs.

Despite intense lobbying by governors around the country, the final deal slashed $25 billion from a proposed state fiscal stabilization fund, eliminated a $16 billion line item for school construction and sharply curtailed spending to provide health insurance for the unemployed.

In driving down the total cost — from $838 billion for the Senate stimulus bill and $820 billion for the House-passed measure — lawmakers also reduced the Senate’s proposed tax incentives for buyers of homes and cars, which hold big public appeal.

The final agreement retained a $70 billion tax break to spare millions of middle-income Americans from paying the alternative minimum tax in 2009. Some Democrats decried the provision as a costly addition that would not lift the economy and that Congress would have approved, regardless of the recession.

After huddling in Ms. Pelosi’s office on Tuesday until nearly midnight, top White House officials and Congressional leaders had all but ironed out the differences between the House and Senate versions of the stimulus by noon on Wednesday.

Even before the last touches were put to the bill, some angry Democrats said that Mr. Obama and Congressional leaders had been too quick to give up on Democratic priorities. “I am not happy with it,” said Senator Tom Harkin, Democrat of Iowa. “You are not looking at a happy camper. I mean they took a lot of stuff out of education. They took it out of health, school construction and they put it more into tax issues.”

Mr. Harkin said he was particularly frustrated by the money being spent on fixing the alternative minimum tax. “It’s about 9 percent of the whole bill,” he said, “Why is it in there? It has nothing to do with stimulus. It has nothing to do with recovery.”

But even as Congressional leaders and top White House officials went through the package with a carving knife, it was clear that the three Republicans who agreed to support the bill in the Senate wielded extraordinary power, and along with conservative Democrats, had put a firm stamp on the stimulus package.

For instance, negotiators opted to keep many of the Senate’s reduced spending provisions, but they were careful to maintain an additional $6.5 billion for medical research that was inserted at the insistence of Senator Arlen Specter, Republican of Pennsylvania, who is a cancer survivor. He was one of the three Republican supporters of the recovery package.

“I think it is an important component of putting America back on its feet,” Mr. Specter said, though he added that it was still a difficult vote “in view of the large deficit and national debt.”

The Senate bill came together only after a bipartisan group of centrist senators, led by Susan Collins, Republican of Maine, and Ben Nelson, Democrat of Nebraska, reached a deal to trim the cost of the package to $838 billion from more than $920 billion.

“These aren’t easy times, obviously for America,” said Senator Olympia J. Snowe, Republican of Maine, who was also a member of that group. “Given the gravity of the circumstances economically, I thought it was important to be part of a process that could yield a consensus-based solution.”

But the majority of Republicans continued to criticize the stimulus measure on Wednesday as a bloated and ill-designed spending bonanza by Democrats on favored projects that would not help lift the economy out of recession but would permanently expand the federal government and plunge future generations of Americans deep into debt.

“Yesterday the Senate cast one of the most expensive votes in history,” said the Republican leader, Senator Mitch McConnell of Kentucky. “Americans are wondering how we’re going to pay for all this.”

Indeed, the formal House-Senate conference meeting, usually an elaborate parliamentary ritual with reams of legislative paperwork strewn across cluttered conference tables, instead served mostly as a live, televised forum for some of the most powerful Democrats and Republicans in Congress to trade barbs.

Senator Charles E. Grassley, Republican of Iowa, complained that despite Mr. Obama’s call for bipartisan cooperation, Republicans had largely been shut out. “We didn’t have a chance to negotiate,” Mr. Grassley said.

Robert Pear, Kate Phillips and Jeff Zeleny contributed reporting.

Unclear which party will get first chance to form government

Israel’s foreign minister and Kadima Party leader Tzipi Livni reacts during an election night rally in Tel Aviv on Tuesday.

No clear winner

Israel voters cast their ballots for the 120-seat parliament Tuesday. Nearly complete results show the leading parties will be:

Kadima: 28 seats

Likud: 27 seats

Yisrael Beitenu: 16 seats

Labor: 13 seats

JERUSALEM – Israeli voters on Tuesday delivered a split decision in national elections, sparking competing claims by backers of opposition leader Benjamin Netanyahu and Foreign Minister Tzipi Livni over who will be the next prime minister.

Voters appeared to give Livni’s Kadima Party, which favors negotiations with the Palestinians, a slight and unexpected edge over Netanyahu’s Likud, which has been critical of peace talks, according to nearly complete returns and exit polls.

But the overall shift in Israel’s parliament, the Knesset, was sharply to the right. That could make it difficult for Livni to build the coalition she would need to govern, particularly if she intends to pursue U.S.-backed talks aimed at creating a Palestinian state.

Both candidates claimed victory, and the political jockeying was expected to intensify in the coming days. It will fall to President Shimon Peres to decide who gets first crack at forming a government – a tricky task in Israel’s fractious political culture. Traditionally, the president chooses the party that receives the most seats in the 120-member Israeli parliament, but he is not obligated to do so. Peres will now consult with all the parties to determine who has the best chance of creating a stable government.

The question of who will lead Israel could linger for weeks or more at a time when the nation faces threats from Hamas in Gaza, Hezbollah in Lebanon and an Iranian government with nuclear ambitions.

Netanyahu, prime minister during the late 1990s, delivered a victory speech just after midnight in which he told cheering supporters in Tel Aviv that “the people of Israel have spoken clearly and sharply. The national camp, headed by the Likud, has won a clear victory.”

Netanyahu signaled he intended to lead a coalition of parties that, like his own, take a hawkish stance toward Iran and believe that the creation of a Palestinian state would present a threat to Israeli security.

Livni, who would be Israel’s first female prime minister since Golda Meir led the country more than three decades ago, served as lead negotiator during last year’s unsuccessful negotiations with the Palestinians. Livni has favored continued efforts toward reaching a deal.

“Today the nation chose Kadima,” an energetic Livni declared to a crowd of backers, who serenaded her with chants of “the next prime minister.”

Livni said she would attempt to form a national unity government that includes parties across the political spectrum.

With votes from more than 90 percent of polling stations counted, Kadima had won an estimated 28 seats in the 120-member Israeli parliament. Netanyahu’s Likud garnered 27. Ultra-nationalist leader Avigdor Lieberman was projected to place third, with 16 seats. Defense Minister Ehud Barak, head of the center-left Labor Party that once dominated Israeli politics, was forecast to drop to fourth at 13 seats.

WASHINGTON — The White House plan to rescue the nation’s financial system, announced on Tuesday by Timothy F. Geithner, the Treasury secretary, is far bigger than anyone predicted and envisions a far greater government role in markets and banks than at any time since the 1930s.

Administration officials committed to flood the financial system with as much as $2.5 trillion — $350 billion of that coming from the bailout fund and the rest from private investors and the Federal Reserve, making use of its ability to print money.

Mindful of previous financial crises at home and abroad that became protracted because governments moved too slowly, Mr. Geithner pointedly criticized the Bush administration for not acting boldly and quickly enough.

But the initial assessment of the plan from the markets, lawmakers and economists was brutally negative, in large part because they expected more details.

Basic questions about how the various parts of the program would work, especially those involving the unsellable mortgages that banks are holding and preventing home foreclosures, were left for another day. Some Wall Street experts criticized the plan for relying too heavily on the same vague solutions proposed by the Bush administration.

The stock market, propped up for weeks on the expectation that Washington would finally deliver a comprehensive rescue plan, dipped almost as soon as Mr. Geithner began speaking in the morning. The Dow Jones industrial average fell 382 points, or 4.6 percent, by the time the market closed. Yields on Treasury bills dropped, indicating a flight from stocks to the safety of government bonds. Asian markets slipped more narrowly.

While traveling in Fort Myers, Fla., President Obama welcomed the news that the Senate voted 61-37 to approve its $838 billion economic stimulus bill Tuesday, but dismissed the market reaction to his bank rescue plan.

“Wall Street, I think, is hoping for an easy out on this thing and there is no easy out,” Mr. Obama said in an interview with ABC News.

Many of the vital details of the program remain unsettled and are the subject of an intense behind-the-scenes debate.

The president himself had built up expectations that the plan would get ahead of the crisis — and not lurch from pillar to post as the Bush administration did last year, often in partnership with the New York Federal Reserve under its then-president, Mr. Geithner.

A central piece of the plan — and the one item that investors most craved information about — would create one or more so-called bad banks that would rely on taxpayer and private money to purchase and hold banks’ bad assets. But the administration provided the least amount of details about this part of the plan.

Another centerpiece of the plan would stretch the last $350 billion that the Treasury has for the bailout by relying on the Federal Reserve’s ability to create money, in effect, out of thin air. The Fed’s money will enable the government to become involved in the management of markets and banks in ways not seen since the Great Depression.

In the credit markets, for instance, the administration and the Fed are proposing to expand a lending program that would spend as much as $1 trillion to make up for the $1.2 trillion decline between 2006 and last year in the issuance of securities backed primarily by consumer loans.

The plan’s third major component would give banks new helpings of capital with which to lend. Banks that receive new government assistance will have to cut the salaries and perks of their executives and sharply limit dividends and corporate acquisitions.

They will also have to make public more information about their lending practices. A Treasury fact sheet said that banks would have to state monthly how many new loans they make, but stopped short of ordering banks to issue new loans or requiring them to account in detail for the federal money.

Mr. Obama, in the ABC News interview, suggested that banks would be required to reveal more about their mortgage holdings.

“Essentially what you’ve got are a set of banks that have not been as transparent as we need to be in terms of what their books look like. And we’re going to have to hold out the Band-Aid a little bit and go ahead and just be clear about some of the losses that have been made because until we do that, we’re not going to be able to attract private capital into the marketplace.”

The day was the first big test of Mr. Geithner as Treasury secretary, who has one of the toughest sells in America: convincing lawmakers and taxpayers that they should again bail out the very banks whose mistakes contributed to the loss of more than three million jobs and caused acute financial pain.

It was clear during the hours he spent before the cameras and lawmakers that he was well-spoken and thoughtful. But his career until now had played out behind the scenes as a civil servant and a central banker. He occasionally lapsed into financial jargon and struggled to connect to a broader public audience.

As the day wore on, Mr. Geithner faced growing skepticism from Democratic and Republican lawmakers, many of them channeling deep voter disgust with the way the government has handled the bailout over the last nine months.

Even Democrats who are supportive of the administration said that it had failed to provide more information about how it would be spending the remaining money in the bailout program.

“We need more details from Treasury on how exactly it plans to remove bad assets while protecting the taxpayer,” said Senator John Kerry, the Massachusetts Democrat who is a senior member of the Senate Finance Committee. “We have zombie banks that are weighed down because their liabilities exceed their assets. Without a precise mechanism for addressing toxic assets, it will be difficult to increase lending.”

The pessimism seemed to indicate that Mr. Geithner missed the mark with one of his shorter-term goals — to quickly instill confidence that the Obama administration has a coherent approach to the banking crisis and that the transparency and oversight of the new program will differ markedly from the Bush administration’s management of the first $350 billion that Congress authorized last year for the Troubled Asset Relief Program, or TARP.

“The spectacle of huge amounts of taxpayer money being provided to the same institutions that helped cause the crisis, with limited transparency and oversight, added to the public distrust,” the Treasury secretary said, in a clear swipe at the Bush administration.

“We will have to try things we’ve never tried before. We will make mistakes. We will go through periods in which things get worse and progress is uneven or interrupted,” Mr. Geithner said.

Representative Barney Frank, the Massachusetts Democrat who heads the House Financial Services Committee, criticized the Obama administration for not putting out more details and said it should commit more than $50 billion to avert home foreclosures.

“The secretary said the administration would present details of their foreclosure reduction plan in a few weeks, which is too much time,” Mr. Frank said.

Appearing on Tuesday afternoon before the Senate banking committee, Mr. Geithner vowed to move quickly to provide more details. But Republicans were skeptical.

“Is there a concrete plan here?” Richard Shelby of Alabama, the senior Republican on the committee, asked Mr. Geithner point blank, after noting that Mr. Geithner had been part of the leadership involved in last year’s bailout efforts. “What is different about the process that you are offering here to devise your plan such that we should have confidence that it is well thought out?”

There was also withering criticism from Wall Street. Ethan Harris, co-head of United States economics research at Barclays Capital, said the program was “shock and uh.” He said the Treasury made a “tactical mistake” by building up expectations about a plan before it had much to announce.

“What’s striking is that these are not new issues that they are facing,” Mr. Harris said. “These are the same issues that the Treasury faced last fall — how do we price the assets? The fact that it’s so been so difficult to figure out the answer may tell you something about whether it’s worth doing or not.”

Mr. Harris warned that setting up a so-called bad bank would be very expensive, as Mr. Geithner himself acknowledged when he set the goal of creating a fund that would reach $1 trillion. Frank Pallotta, a former managing director at Morgan Stanley and a veteran mortgage trader, said the gap was so wide between what banks were valuing their assets and what investors were willing to pay that the government would attract investors to buy only if it provided a subsidy of one form or another.

“Right now, the banks aren’t selling anything,” said Mr. Pallotta, now a consultant to both buyers and sellers of distressed mortgages. “You have Chase thinking that its assets are worth 75 cents on the dollar, and Joe Hedge Fund who thinks they are only worth 45 or 25. There is a huge gap, and the government has to find out if there is some middle point where they can get in.”

Mr. Pallotta said he did not fault the Treasury for failing to offer specifics yet, but he said it could not delay for long. “If we don’t hear in the next 30 days about how this thing will flesh out, then I would be upset.”

Jeff Zeleny contributed reporting from Fort Myers, Fla.

Cal Thomas is a columnist for Tribune Media Services.

David S. Broder is a columnist for the Washington Post. His e-mail address is davidbroder@washpost.com.

Trudy Rubin is a columnist for the Philadelphia Inquirer. Her e-mail address is trubin@phillynews.com.

Beth Thew is secretary-treasurer of the Spokane Regional Labor Council, AFL-CIO.

Charles Krauthammer is a columnist for the Washington Post Writers Troup. His e-mail address is letters@charleskrauthammer.com.

WASHINGTON — Senate Democrats reached an agreement with Republican moderates on Friday to pare a huge economic recovery measure, clearing the way for approval of a package that President Obama said was urgently needed in light of mounting job losses.

The deal, announced on the Senate floor, was a result of two days of tense negotiations and political theater. Mr. Obama dispatched his chief of staff to Capitol Hill to help conclude the talks and reassure senators in his own party, and he called three key Republicans to applaud them for their patriotism.

Earlier, when it looked as if a vote might take place Friday night, officials said, a government plane was dispatched to Florida to bring back Senator Edward M. Kennedy, a Massachusetts Democrat who has brain cancer.

The fine print was not immediately available, and the numbers were shifting. But in essence, the Democratic leadership and two centrist Republicans announced they had struck a deal on about $110 billion in cuts to the roughly $900 billion legislation — a deal expected to provide at least the 60 votes needed to send the bill out of the Senate and into negotiations with the House, which has passed its own version.

The pact, which is expected to be approved in the next few days, was concluded just hours after the Labor Department announced that 598,000 jobs were lost in January. The contraction in jobs is already steeper than in any other recession since at least the early 1980s. And economists warn that several more shoes are about to drop, a message that added urgency to the Senate deliberations.

As the negotiations were under way, lawmakers said it was time to stop quibbling about the exact parameters of the legislation — which mixes safety-net spending, tax cuts and a huge infusion of dollars into federal programs — and to begin work toward a final agreement that could be sent to Mr. Obama next week.

“Our country can’t wait another day for another approach,” said Senator Ben Nelson, a Nebraska Democrat who is a leader of the bipartisan coalition that worked out the agreement.

The details were negotiated at an afternoon meeting in the office of the Senate majority leader, Harry Reid of Nevada, involving Mr. Reid, other top Democrats and two Republicans, Susan Collins of Maine and Arlen Specter of Pennsylvania. After they came to terms, the senators brought in the White House chief of staff, Rahm Emanuel, for assurance that the deal was acceptable to the administration. Mr. Emanuel signaled it was.

“With today’s unemployment numbers reaching more than 3.6 million workers,” Mr. Emanuel said after the session, “delay and failure were not an option.”

Mr. Obama called Ms. Collins and Mr. Specter, as well as Senator Olympia J. Snowe of Maine, another Republican expected to support the deal, to acknowledge they were acting against pressure from their party and, one official said, to thank them for their patriotism in helping advance the bill at a critical time.

Earlier in the day, Mr. Obama urged Congress to act expeditiously. “It is inexcusable and irresponsible for any of us to get bogged down in distraction, delay or politics as usual while millions of Americans are being put out of work,” said Mr. Obama, who has recently shown less patience for Republican resistance to the bill.

Most Senate Republicans remained opposed to the measure, criticizing it as a case study in excessive spending that would do little to lift the economy. Some conservatives indicated Friday night that they would push for time to study the new legislation before any final vote.

“We want to stimulate the economy, not mortgage the future of our children and grandchildren by the kind of fiscally profligate spending embodied in this legislation,” said Senator John McCain of Arizona, the defeated Republican presidential nominee, who has emerged as a chief opponent of the proposal.

Republicans were clearly irritated at the outcome and faulted those involved in working out the bargain. “When you say this was the best we could do, I disagree with you,” Senator Lindsey Graham of South Carolina said on the floor. “This not remotely close to what we could have done if we had sat down in a true bipartisan fashion and found a better way.”

The Senate’s proposed cuts took aim at an array of popular spending programs that critics said should not be part of a fiscal recovery bill, even if they represent laudable policy goals, because they would not deliver a quick enough jolt to the economy.

Even Mr. Obama’s signature tax cut for middle-class Americans was scaled back as part of the deal. Under the new plan, tax credits of up to $500 for individuals and $1,000 for couples would begin to phase out at lower income levels than first proposed, saving the government $2 billion.

The biggest cut, roughly $40 billion in aid to states, was likely to spur a fierce fight in negotiations with the House over the final bill. Many states, hit hard by the recession, face wrenching cuts in services and layoffs of public employees as they struggle to comply with laws requiring them to balance their budgets.

When debate began this week, the price tag on the Senate version of the stimulus bill was roughly $884 billion, but it grew to more than $900 billion as senators added provisions including tax breaks totaling $30 billion for purchases of homes and cars.

Lawmakers said that by poring over the 736-page bill they had excised about $110 billion, bringing the total cost to about $780 billion — $40 billion less than the stimulus bill approved by the House last week. Because of consumer tax breaks and spending for health research that had been added in the Senate, the new total for the measure could be about $820 billion. But even the senators behind the compromise were uncertain of the number.

In addition to the large cut in state aid, the Senate agreement would cut nearly $20 billion proposed for school construction; $8 billion to refurbish federal buildings and make them more energy efficient; $1 billion for the early childhood program Head Start; and $2 billion from a plan to expand broadband data networks in rural and underserved areas.

The administration had initially hoped that it could win the support of as many as 80 senators, but that goal disappeared after House Republicans voted unanimously against the measure. As questions were raised about the total spending, getting even three or four Republican senators to sign on became difficult.

Ms. Collins said she believed the changes had significantly improved the measure. Mr. Specter said that while he still had reservations, he had come to accept Mr. Obama’s push to enact the economic plan by mid-February. “I believe we do have to act,” Mr. Specter said, “and under the circumstances this is the best we can do.”

But several other Republicans who had taken part in the talks said they could not support the compromise.

“Unfortunately, there was too much in the Democratic counterproposal that was not stimulative,” said Senator George V. Voinovich of Ohio, “and that did not provide the jump-start our economy so desperately needs.”

The Senate Republican leader, Mitch McConnell of Kentucky, said most Republicans remained unconvinced that the package would reinvigorate the economy.

“You have to balance the likelihood of success versus the crushing debt that we’re levying on the backs of our children, our grandchildren and, yes, their children,” Mr. McConnell said.

Mr. Reid urged Republicans to get behind the plan. “This is a critical day for this new Congress and our country,” he said. “Faced with this grave and growing economic crisis, Republicans must decide today whether they will join the president and Congressional Democrats on that road to recovery.”

HHS Pick Built Connections Over Decades

By Ceci Connolly
Washington Post Staff Writer
Tuesday, February 3, 2009

As he battles this week to save his nomination to be secretary of health and human services, one thing is certain: No one in Washington has a better-positioned network of allies in the Obama administration than Thomas A. Daschle.

Over three decades on Capitol Hill, including 10 years as the Senate Democratic leader, Daschle has nurtured one of the largest, most experienced talent pools in the city. His charges guided Barack Obama from his first days in the Senate, through the presidential race and into the White House. Daschle’s tentacles, moreover, stretch far beyond the agency Obama picked him to lead, reaching across the entire administration from the upper echelons of the White House to mid-level departmental positions to Obama’s kitchen cabinet.

The network is being tapped this week as Daschle and his allies scramble to explain why he did not pay more than $100,000 in back taxes, primarily for the use of a car and driver for three years. After a 75-minute closed-door meeting yesterday with the Senate Finance Committee, he emerged ashen-faced and apologetic. His confirmation vote has been postponed until at least the middle of next week.

Republicans remained noncommittal yesterday, weighing the costs and benefits of perhaps killing the nomination of a former colleague and close personal friend of the president. Democrats rose to Daschle’s defense, including, most notably, the man who would be without much of his top staff were it not for Daschle.

Asked yesterday morning whether he stands by Daschle, Obama said firmly: “Absolutely.”

If he weathers the tax controversy, Daschle is likely to be one of the best-connected Cabinet secretaries in the administration, if not history.

At least a dozen Daschle alumni are stepping into the highest positions of the federal government. Already, Obama and Vice President Biden have tapped Daschle veterans to manage their staffs, guide foreign policy and craft public relations strategy. In addition to the new HHS chief of staff, the chiefs of staff to Biden, the National Security Council and Treasury Secretary Timothy F. Geithner all worked for Daschle. His allies oversaw Obama’s transition team — including vetting Daschle himself — and one serves as the president’s personal lawyer.

“This is notable for the breadth and scope and number,” said Chris Jennings, who was the Clinton administration point man on health care and knows the challenges of navigating the White House bureaucracy.

As news broke over the weekend that Daschle had made several tax errors, many of those former colleagues and aides helped mount a defense, praising his integrity on talk shows, in news releases and in whispered asides. Not a single lawmaker has called for him to withdraw.

But the real potency of the network will come if Daschle is confirmed, said Ross K. Baker, a political scientist at Rutgers University. With such well-placed, trusted advisers, he would be in a position to promote his priorities and shape policy well beyond the contours of his department.

“The fact that he has eyes and ears in the White House, rather than way down in the HHS bureaucracy, is really an advantage,” Baker said. He likened Daschle’s sphere of influence to the broad power that Henry Kissinger held as secretary of state in the Nixon administration.

“Geography is determinant of influence,” he said. “To have people proximate to the president is a real advantage.”

Like Daschle, Secretary of State Hillary Rodham Clinton can lay claim to an impressive network of insiders, developed during her husband’s eight years in the Oval Office and her eight in the Senate. Many have worked for Daschle as well. But the Clinton coalition has become fractured and she carries the lingering scars of a contentious fight with Obama in the Democratic presidential primaries.

By contrast, Daschle and Obama share an uncommon bond, forged during the 2004 campaign. Many — including aides to Daschle — had expected him to seek the White House. But the South Dakotan lost a nasty reelection fight, and the young Illinois legislator burst onto the national scene and into the U.S. Senate.

“Tom was the first guy to go with Obama” in the pre-presidential campaign season, said Frederick H. Graefe, a Washington lobbyist and one of Daschle’s oldest friends. “He told him, ‘Run now, don’t wait, don’t make the mistake I made. I’ll give you everybody I have — the campaign team, the personal staff, leadership staff, fundraising lists — lock, stock and barrel.’ ”

“It was a ready-made team,” Graefe added.

As a Senate leader with authority over not just his personal staff but several policy and campaign committees as well, Daschle employed more than 100 people at any given time. From 1994 to 2005, even more than the Clinton White House, “the University of Daschle” was the place to learn the inner workings of governing, Baker said.

More than half a dozen Daschle veterans hold high-ranking White House positions, most notably Pete Rouse, who was his chief of staff and is now senior adviser to the president, and Phil Schiliro, Obama’s legislative liaison.

Daschle-ites are also taking positions at the Agriculture Department and the Democratic National Committee. Some of his closest allies are among Obama’s most trusted outside advisers, a select group whose influence comes not from a title but from a personal bond. They include John D. Podesta, the Center for American Progress president who masterminded Obama’s transition; lawyer Robert Bauer; and political consultant Anita Dunn.

“The spokes of the wheel all lead to Pete Rouse,” said Dunn, who has deep ties to both men. “When Pete went to work for Barack, what Barack got — and I don’t think he realized it — was the only network in Democratic circles that from both a policy and political perspective came close to the Clinton network.”

Rouse got his start in Washington in the early 1970s when he and Daschle were young aides to then-Sen. James Abourezk (D-S.D.). In 1986, he began an 18-year stint with Daschle.

When Daschle lost in 2004, he encouraged his team to sign on with Obama. Rouse agreed and eventually recruited many of Obama’s top aides, including Schiliro and the husband-and-wife team Dan Pfeiffer and Sarah Feinberg.

If confirmed, Daschle will be “HHS secretary plus,” said Dunn, referring to the additional role as head of the new White House Office of Health Reform, which has a small but well-situated office in the basement of the West Wing.

If Daschle were working at HHS headquarters, his “embeds,” as Dunn calls them, could provide “an extraordinary level of information and access that most Cabinet secretaries don’t have.”

“It’s a matter of him not having to go in and forge relationships,” she said. “Daschle gets to deal directly with people he knows and is comfortable with.”

If as HHS secretary he wanted to tweak health tax policy, his longtime chief of staff, Mark Childress, would need only pick up the phone and call former colleague Mark Patterson, Geithner’s chief of staff. If there were an international health issue to resolve, Childress could contact Daschle alums Mark Lippert at the NSC and Denis McDonough on the White House staff.

And if Daschle needed assistance from Biden, he could turn to Ron Klain, the vice president’s chief of staff, who oversaw the Senate Democratic Leadership Committee for Daschle in 1995. Biden was making calls on Daschle’s behalf yesterday.

The Daschle hires that Obama has made are the “cream of the crop” of the Democratic establishment, Jennings said.

“People outside the Daschle orbit recognize his friendship with and influence with President Obama,” he said. “It’s the cumulative perceptions of his respect and influence within the administration and his former staff. Whether it’s an accurate perception or not, perception is reality in Washington.”

Staff writers Paul Kane and Joe Stephens and research editor Alice Crites contributed to this report.

UPDATE

Daschle Ends Bid for Post; Obama Concedes Mistake

WASHINGTON — Tom Daschle withdrew his nomination as secretary of health and human services on Tuesday after weathering four days of scrutiny over unpaid taxes, prompting President Obama to concede having “screwed up” in undermining his own ethical standards by pushing the appointment.

“I’ve got to own up to my mistake, which is that ultimately it’s important for this administration to send a message that there aren’t two sets of rules,” Mr. Obama said in an interview with NBC News. “You know, one for prominent people and one for ordinary folks who have to pay their taxes.”

Mr. Daschle, a closer confidant to Mr. Obama than any other cabinet nominee, had offered to step down over the weekend, but officials close to both men said Mr. Obama had urged him to fight for confirmation.

Mr. Daschle went to Capitol Hill on Monday to keep his confirmation on track, but by Tuesday morning, with the pressure showing no signs of easing, he told the president that he believed he had become a distraction and too wounded to be effective.

It was the rockiest day yet for the new White House. Two hours before Mr. Daschle withdrew, Mr. Obama’s nominee to be the chief White House performance officer, Nancy Killefer, pulled her name from consideration because of unpaid payroll taxes for a household employee.

The developments distracted attention from Mr. Obama’s effort to push his economic stimulus plan through the Senate and complicated the initiative that Mr. Daschle was to have led, his plan for overhauling the health care system.

The nominees’ tax problems also gave Republicans a new argument against Mr. Obama and his party as the economic debate proceeds: that Democrats are cavalier about taxing other people because they do not abide by the tax laws themselves.

In evening interviews on broadcast and cable television networks, Mr. Obama said he took responsibility for the errors. “And so I’m frustrated with myself, with our team,” he told NBC, “but ultimately my job is to get this thing back on track because what we need to focus on is a deteriorating economy and getting people back to work.”

He added, “I’m here on television saying I screwed up and that’s part of the era of responsibility.”

Mr. Daschle delivered the news in a call on Tuesday morning to Mr. Obama, who was in his study, just off the Oval Office. He also stepped down from his position as White House heath czar, a job with a West Wing office.

Mr. Daschle said Monday that his failure to pay $128,000 in taxes for the use of a friend’s chauffer and car service was “completely inadvertent.”

Declining an interview request on Tuesday afternoon, Mr. Daschle said in a brief statement distributed by the White House that he would not have been able to lead an overhaul of the nation’s health care system “with the full faith of the Congress and the American people.”

“I am not that leader,” Mr. Daschle said, “and will not be a distraction.”

The withdrawals by the two advisers represent the highest-level political casualties of the young administration and raised fresh questions about the vetting procedures for officials already selected and scores of positions that remain open.

Senate Republicans signaled their intention to step up scrutiny of all appointees. Treasury Secretary Timothy F. Geithner was confirmed last week after apologizing and weathering weeks of criticism for late payment of $34,000 in income taxes.

Both Mr. Daschle and Ms. Killefer pulled out on their own accord, officials said, after their tax returns were scrutinized by the Senate Finance Committee. On the campaign trail, Mr. Obama often expressed frustration to aides about the practice of cutting loose advisers at the first sign of political trouble.

“They both decided and recognized that their nominations would distract from the important goals and the critical agenda that the president put forward,” Robert Gibbs, the White House press secretary, said Tuesday.

Asked repeatedly whether the White House had quietly urged Mr. Daschle to step aside to quell the controversy, Mr. Gibbs said, “He did not get a signal.”

Among the people mentioned as possible candidates for the job of health secretary are Gov. Kathleen Sebelius of Kansas, a former state insurance commissioner; former Gov. John A. Kitzhaber of Oregon, a doctor; and Gov. Jennifer M. Granholm of Michigan. All are Democrats.

In the Senate, Democrats were caught by surprise by Mr. Daschle’s decision, particularly after his appearance at the Finance Committee on Monday, as well as several indications that he could win confirmation.

But Republicans were intensifying their criticism of his tax failings, and Senator Harry Reid of Nevada, the majority leader, said Mr. Daschle told him in a phone call on Tuesday morning that he believed the nomination was getting too much attention.

Senator Richard J. Durbin of Illinois, the No. 2 Democrat in the Senate, said Mr. Daschle, the former Senate majority leader, had done “the honorable thing to spare his family, the president and his colleagues in the Senate from a tough political battle that would lie ahead.”

Mr. Durbin added, “I think he would have prevailed in the end, but it would have taken a while, and there would have been some suffering.”

The day had been scripted by advisers to turn the page on the tax controversy and refocus on the economy. In a rare move, television anchors for five broadcast and cable networks had been invited to interview Mr. Obama about the urgency of passing the economic recovery plan, a decision that magnified the troubles at the White House by giving them increased prominence on the evening news.

He delivered almost precisely the same mea culpa to each of the anchors as they cycled through the Oval Office.

Hours earlier, as his advisers huddled in the West Wing to shape a strategy for responding to the dizzying turn of events, Mr. Obama and his wife, Michelle, made an unscheduled stop at a public school not far away.

“We were just tired of being in the White House,” Mr. Obama told second graders at Capital City Public Charter School.

Senator John Kerry, Democrat of Massachusetts, who sits on the Finance Committee, said he believed Mr. Daschle should not have withdrawn his name.

“I believe that when the smoke clears and the frenzy has ended, no one will believe that this unwitting mistake should have erased 30 years of selfless public service and remarkable legislative skill and expertise on health care,” Mr. Kerry said.

In the case of Ms. Killefer, administration officials said she had failed to pay more than a year’s worth of unemployment taxes on household help.

The District of Columbia filed a $946.69 tax lien on her home in 2005 for failure to pay the tax. That was disclosed to the Senate Finance Committee, but officials said her tax records were being further scrutinized.

“I recognize that your agenda and the duties facing your chief performance officer are urgent,” Ms. Killefer wrote in a letter to Mr. Obama on Tuesday.

“I have also come to realize in the current environment that my personal tax issue of D.C. unemployment tax could be used to create exactly the kind of distraction and delay those duties must avoid.”

Ms. Killefer, head of the Washington office of the consulting firm McKinsey & Company, was named to the new position on Jan. 7. In the announcement, Mr. Obama said she would help “restore the American people’s confidence in their government.”

He said at the time that her role would be to scour the budget for wasteful or inefficient spending.

Robert Pear and Carl Hulse contributing reporting.

BAGHDAD — Iraqis across the country voted Saturday in provincial elections that will help shape their future, but regardless of the outcome it is clear that the Americans are already drifting offstage — and that most Iraqis are ready to see them go.

The signs of mutual disengagement are everywhere. In the days leading up to the elections, it was possible to drive safely from near the Turkish border in the north to Baghdad and on south to Basra, just a few miles from the Persian Gulf — without seeing an American convoy. In the Green Zone — once host to the American occupation government, and now the seat of the Iraqi government — the primary PX is set to close, and the Americans have retreated to their vast, garrisoned new embassy compound. Iraqi soldiers now handle all Green Zone checkpoints.

American helicopters and drones may be in the sky, but Iraqi boots are on the ground. The Americans are already worried about securing the road to Kuwait because soon they will have to start hauling out much of the infrastructure they have built on bases across Iraq.

The end of an era comes not in a single moment, but looking back it has become evident that the mood has changed, power has shifted, the world is not the same.

In the United States, many Americans view the war as already over, even though more than 140,000 American soldiers remain on Iraqi soil.

President Obama has made it plain that Iraq is not his war; he wants to focus on Afghanistan. In an economic crisis, there is simply not enough money for the country to keep spending hundreds of millions of dollars a day in Iraq.

Any arguments that remain in Washington about the shape and timing of the troop withdrawal this year seem almost moot here, given how much Iraqis want to show they can govern on their own and how much Americans want to hand over responsibility to the Iraqis so they can meet withdrawal deadlines.

This is not to suggest that the war is over. In two provinces, Nineveh and Diyala, counterinsurgency operations are still under way, and the military is tracking signs of activity by Sunni extremist groups in the troubled areas surrounding Baghdad. For now, the rest of the country is mostly calm. The provincial elections will test political stability: whether Iraqis can begin to resolve still festering sectarian and ethnic tensions through the ballot box. The formal process of disengagement started in earnest in November, when the Iraqi Parliament approved a new security agreement with the Americans that sealed the date of departure, by the end of 2011, and almost immediately changed the balance of power.

The outlook of Iraqi citizens has changed as well. They are more confident that their problems are their own, and that the Americans cannot fix them and often have only made matters worse.

“The American military presence brought nothing to our streets but destruction and chaos,” said Omar al-Dulaimi, 57, a government employee who lives near the Um al-Khoura mosque, one of the largest Sunni places of worship in the capital. “We had nothing from them but tension and confusion. It’s much better for us and for them if they stay in their bases now.”

That resentment of the American presence boiled over in 2007 after Blackwater Security guards opened fire on Iraqi civilians in Nisour Square, killing 17 of them and wounding more than 30. That episode, which was widely publicized in Iraq and abroad, crystallized Iraqi loathing and resentment of what they saw as Americans’ casual disregard for Iraqi lives — and their own powerlessness to hold the Americans to account.

Such anger helped embolden Iraqis to drive a tough bargain on the security agreement, which cemented their sense that they were, at last, seizing control of their own destiny. The Iraqi resolve surprised the Americans, who in the end were forced to accept a hard deadline for departure, give up immunity for contractors like Blackwater and give Iraqis explicit authority over all military operations in the country.

Now, for both sides there is the feeling that something has changed and that whatever happens next, Iraq will not return to the way it was.

“We’re going through transition in Iraq at the same time we’re going through transition in our forces here,” said Gen. Ray Odierno, the commanding general for Iraq. “They will elect new provincial governments. I believe 75 percent to 80 percent of the provincial governments will change, and oh, by the way, we’ll begin to reduce our troops’ size.”

The shifts are subtle, often unspoken. The American military role now has less to do with protecting Iraqis and more with giving them the psychological reassurance that they can handle what comes their way. The Americans no longer tell the Iraqis what to do, and the Iraqis, especially Iraqi Army officers, no longer look to the Americans for approval. At least that is the case in areas where the fighting has stopped; less so in areas like Mosul where American military might is still required to keep violence at bay.

When General Odierno stopped to inspect a polling center in rural Medaen, south of Baghdad, on Wednesday, his conversation with the Iraqi Army general who oversees the area was respectful, a little formal: two military men exchanging information. It was not exactly a conversation between equals; each knew that the other was from a different world, each knew the Americans have superior arms and training, and each offered the other his observations.

“I see less Sunni-Shia issues than I do a lot of other issues here,” General Odierno said.

Gen. Qassim al-Maliki nodded. “We have a lot of Shia voting this time,” he said. “We didn’t have a lot in the last election,” he said.

As the American military slowly steps back, the diplomats and the civilians are emerging from the wings. Certainly, this is far from a normal diplomatic relationship. Iraqis entering any area close to the Americans are still subject to multiple humiliating searches and interminable waits. American diplomats cannot yet leave the embassy; they live like virtual prisoners, every movement beyond its gates an armed undertaking. But it is possible for Americans and Iraqis to talk about issues other than sheer survival.

Iraqis, too, are beginning to explore a different kind of relationship, one that no longer looks to the Americans only for protection. Prime Minister Nuri Kamal al-Maliki has agreed to finance a substantial scholarship program to send Iraqis to the United States and British Commonwealth countries for study, in an effort to create a better educated professional class. Still, the American era in Iraq is nowhere near a final act. If this were an opera, it would be just past midway in the libretto. While both sides are disconnecting, neither can let go entirely.

The Iraqis need the Americans not just to dampen terrorist activities within the country but to protect them from predatory neighbors. Syria and Iran have interfered here since the invasion, and while the Iraqis are often uncomfortable with how the Americans have reined in these powers, they are reluctant to stop them because they fear their neighbors more.

When American forces pursued insurgents over the Iraqi border into Syria in late October, it was an international incident. Iraq was embarrassed in front of the Arab world. Such incidents are likely to recur and could become much more fraught.

For the United States, Iraq remains a strategic prize close to the Middle East flash points of Israel, Lebanon and Syria as well as Iran and the oil-rich Persian Gulf countries. It is not by chance that the Central Intelligence Agency has its largest station in the world in Baghdad.

It is inescapable that the United States exerts more influence here than in any other oil-producing country — and will be intent on continuing to do so. Iraq will be eager to demonstrate its independence; the United States will have to rely on levers other than a huge and continuing military presence. This promises considerable tension as each side redefines its relationship.

The elections on Saturday were a step toward a peaceful approach to settling disagreements among factions about the shape of the country. If new governments are seated from north to south and east to west, the United States and Iraq can begin the next act in earnest.

If all goes well, “The United States will not need big troops here,” said Jawad al-Bolani, the interior minister, a secular Shiite. “The Americans need to look at something besides security. Iraq needs America to start a new chapter.”

Riyadh Mohammed contributed reporting from Baghdad.

By PHILIP ELLIOTT

WASHINGTON (AP)

Republican Sen. Judd Gregg of New Hampshire said Friday that he’s being considered by President Barack Obama for a Cabinet appointment as head of the Commerce Department. Senior Democrats said the New Hampshire senator is among those at the top of a list for the job, although they emphasized that no move was imminent. They spoke on condition of anonymity because no decision has been made and they were not authorized to discuss the administration’s thinking. “I am aware that my name is one of those being considered by the White House for secretary of commerce, and am honored to be considered, along with others, for the position,” Gregg said in a statement. “Beyond that there is nothing more I can say at this time.” A Capitol Hill leadership aide said Thursday evening that Obama had talked with his party’s leaders about the move to appoint Gregg, which could put Democrats within reach of a 60-person, filibuster-proof majority in the Senate if New Hampshire Gov. John Lynch were to name a fellow Democrat. Democrats hold a 56-41 majority in the 100-member Senate, and two independents caucus with them. The Senate seat from Minnesota remains undecided, with Sen. Norm Coleman and challenger Al Franken in a close, court-based contest. Gregg has said he plans to run for re-election in 2010. He was the GOP’s chief negotiator for the $700 billion bailout of the financial industry, a plan unpopular with many Republicans. New Hampshire has been trending toward the Democrats, although independents remain a major force in the “Live Free or Die” state. Obama’s first choice to run the Commerce Department, New Mexico Gov. Bill Richardson, dropped out of consideration amid a grand jury investigation over how state contracts were issued to political donors. White House officials insisted Thursday that no decision had been made. It was also not clear if Lynch — popular, but for many fellow Democrats frustratingly moderate at times — would pick someone out of party loyalty. During the state’s first-in-the-nation presidential primary, Lynch made positive statements about Republican John McCain and attended one of his signature town halls. He also named GOP star Kelly Ayotte his attorney general as part of a centrist governing style that delivered him re-election with 70 percent of the vote. A member of a New Hampshire political family and a policy wonk, Gregg rose through the Senate ranks to serve as chairman of the powerful Budget Committee and the Appropriations subcommittee that funds homeland security. Now in the minority, he is the ranking Republican member on the Budget Committee but still has large sway in the GOP’s response to Obama’s legislative agenda.

Gregg to Be Nominated Tuesday for Commerce Job

By Anne E. Kornblut and Shailagh Murray
President Obama will nominate Sen. Judd Gregg (R-N.H.) tomorrow for commerce secretary, a White House official said tonight.

The nomination is the last for Obama’s Cabinet. New Mexico Gov. Bill Richardson (D) was nominated Dec. 3 to head the Commerce Department, but he withdrew his name from consideration a month later because of a federal investigation involving state government contracts.

Gregg appears willing to take the Commerce job, but he announced one condition today: His replacement in the Senate had to be a Republican.

“I have made it clear to the Senate leadership on both sides of the aisle and to the Governor that I would not leave the Senate if I felt my departure would cause a change in the makeup of the Senate,” Gregg said in a statement.

Over the weekend, White House officials said that Gregg was the leading candidate for the Commerce.

Senate Republicans said they were somewhat mystified by Gregg’s potential move. As the ranking GOP senator on the Budget Committee, Gregg could play a potentially pivotal role in budget and entitlement reform, potentially the most challenging items on Obama’s ambitious to-do list. But if Gregg takes the Cabinet slot, he would likely be replaced as ranking member by Sen. Jeff Sessions (R-Ala.), one of the most conservative members of the Senate with a highly partisan track record.

Robert Gibbs, the White House press secretary, declined to answer questions about Gregg during his daily briefing. “Obviously the president has great respect for Senator Gregg. I’m not going to get into personnel announcements before we are there,” Gibbs said. “And as it relates to picking senators in states that need new senators, I think you can rest reasonably assured that this administration has had nothing and wants nothing to do with that going forward. And I would bold and underline that.”

Lynch is widely expected to appoint a Republican to replace Gregg, someone who could be a caretaker in the seat until the next election, in 2010. But Lynch has not officially said so. In a statement on Monday, Lynch said: “We are in the midst of a national economic crisis, and it calls for cooperation on all of our parts. We all need to work together to do what is in the best interest of our country and our state. I have had conversations with Senator Gregg, the White House and the U.S. Senate leadership. Senator Gregg has said he would not resign his seat in the U.S. Senate if it changed the balance in the Senate. Based on my discussions, it is clear the White House and Senate leadership understand this as well.”

Lynch continued: “It is important that President Obama be able to select the advisers he feels are necessary to help him address the challenges facing our nation.”

Illinois Senators Vote 59-0 to Oust ‘Devious’ and ‘Unfit’ Governor

By Kari Lydersen and Peter Slevin
Washington Post Staff Writers
Friday, January 30, 2009; A01

SPRINGFIELD, Ill. Jan. 29 — The state senators stood up one by one in a hushed chamber on Thursday to call Gov. Rod Blagojevich (D) a liar and a hypocrite who put his ego and his pocketbook ahead of the interests of Illinois.

One called him “devious, cynical, crass and corrupt.” Another said the evidence of abuse of power was “overwhelming.” A third said he was “without a doubt unfit to govern.”

Together, they voted 59 to 0 to reject Blagojevich’s theatrical last-minute pleas and remove him from office, ending a stormy tenure that left the nation’s fifth-largest state paralyzed by its governor’s alleged misdeeds and nationally ridiculed for its latest bout of corruption.

“I believe our state must enter rehab,” Sen. Randall Hultgren (R) told his colleagues before the vote. “Moral rehabilitation.”

Blagojevich’s repudiation in a state where he was elected twice to the governorship and three times to Congress could mark a dramatic exit from the national stage, which he commanded briefly but memorably. His next battle is expected to come in federal court in Chicago, where he risks losing his freedom over allegations that he schemed to trade official actions for political contributions and other favors.

Blagojevich, charged with wire fraud and bribery, is free on $4,500 bond.

Before Thursday’s speechmaking was over, and a pair of unanimous votes were cast to oust Blagojevich and bar him from Illinois public office for life, the governor had already taken his final flight home to Chicago aboard a state airplane. After he arrived, on a darkening winter afternoon, as his fate was about to be sealed, he went for a jog.

Talking with reporters later, he called the verdict “un-American.”

“The fix was in from the beginning,” Blagojevich said, insisting that he wants no pity.

“There are tens of thousands of people across America just like me who are losing their jobs, or who have lost their jobs,” Blagojevich said. “To the people of Illinois, God bless all of you. I want you to know that I haven’t let you down.”

Lt. Gov. Pat Quinn became the state’s 41st governor and said he would move right away into the Italianate red-brick governor’s mansion that Blagojevich disdained. Quinn supported Blagojevich during their reelection on the Democratic ticket in 2006, but the men have not spoken since August 2007.

“The rule of law prevailed in Illinois. We are ready to move forward,” Quinn said after the vote. “Something I’m going to work on night and day is to ask folks to put aside differences of the past and really focus on the common good. We’re going to make this a year of reform in Illinois.”

Quinn quoted labor leader Cesar Chavez, saying “Sí se puede” — “Yes, we can.”

The impeachment saga moved from drama to farce and back again in the 51 days after FBI agents arrested Blagojevich in the middle of what U.S. Attorney Patrick J. Fitzgerald called “a political corruption crime spree.” Along the way, Blagojevich bucked calls to resign and outmaneuvered Democratic leaders in Springfield and Washington to appoint Roland W. Burris, little known and years out of politics, to the U.S. Senate seat vacated by President Obama.

Instead of challenging his impeachment, he was 700 miles away when the trial began Monday, denouncing the proceedings in more than a dozen national television interviews as a “kangaroo court.” He showed up only on Thursday, to deliver his own closing argument.

It was a speech long on passion and short on answers, and it did nothing to help his cause. Blagojevich spoke of his immigrant parents, his hard-luck upbringing and good works he claimed as governor. He called the proceedings “an evisceration of the presumption of innocence.”

“There was never a conversation where I intended to break any law,” Blagojevich, 52, told the Senate. “How can you throw a governor out of office on a criminal complaint and you haven’t been able to show or to prove any criminal activity? I’m appealing to you and your sense of fairness.”

His defiance left his accusers unmoved in the face of evidence from witnesses and secret wiretaps that appeared to show that Blagojevich schemed to profit from his official actions: He allegedly tried to sell Obama’s former Senate seat and allegedly plotted to force the firing of Chicago Tribune editorial writers by threatening to withhold $150 million in state money for Wrigley Field, owned by Tribune Co.

Prosecutors said Blagojevich plotted to extort campaign contributions from a racetrack operator, a road contractor and an executive of a Chicago children’s hospital whose doctors were owed $8 million in Medicaid reimbursements.

Senators noted that Blagojevich refused to be questioned under oath about the 13 alleged misdeeds that House prosecutor David Ellis called an “unmistakable” pattern of abuse of power. Ellis paid particular attention to FBI excerpts of 60 taped conversations.

“Our point was on his words, his secretly recorded words, and who in the world was more qualified to testify about the governor’s words than the governor himself?” Ellis asked during his closing argument.

“He talked more about the evidence with Barbara Walters on ‘The View’ than he did in this chamber today, where he’s facing impeachment and removal from office. He could have been here, and he wasn’t.”

“The silence that spoke loudest was the absent voice of the governor,” Sen. Toi Hutchinson (D) said before she voted to remove him. “The price of corruption is high, and the people of my district are tired of paying for it, over and over and over.”

“He reminded us today in real detail,” said Sen. Matt Murphy (R), “that he is an unusually good liar.”

Sen. Kirk Dillard (R) added, tongue in cheek, that Blagojevich has a bright future in Hollywood.

Blagojevich became the first Illinois governor to be impeached and expelled from office. Three Illinois governors since 1973 were convicted after leaving office, including his predecessor, George Ryan (R), who is still in prison.

The Blagojevich saga may be remembered for the target’s salty words, captured on the FBI tapes.

“I’ve got this thing and it’s [expletive] golden,” Blagojevich said of his authority to choose Obama’s successor, “and I’m just not giving it up for [expletive] nothing.”

As Sen. James Meeks (D) informed his colleagues that he was planning to vote to kick Blagojevich out of office, he said, “We have this thing called impeachment and it’s bleeping golden, and we’ve used it the right way.”

Slevin reported from Chicago.

WASHINGTON — President Obama branded Wall Street bankers “shameful” on Thursday for giving themselves nearly $20 billion in bonuses as the economy was deteriorating and the government was spending billions to bail out some of the nation’s most prominent financial institutions.

“There will be time for them to make profits, and there will be time for them to get bonuses,” Mr. Obama said during an appearance in the Oval Office with Treasury Secretary Timothy F. Geithner. “Now’s not that time. And that’s a message that I intend to send directly to them, I expect Secretary Geithner to send to them.”

It was a pointed — if calculated — flash of anger from the president, who frequently railed against excesses in executive compensation on the campaign trail. He struck his populist tone as he confronted the possibility of having to ask Congress for additional large sums of money, beyond the $700 billion already authorized, to prop up the financial system, even as he pushes Congress to move quickly on a separate economic stimulus package that could cost taxpayers as much as $900 billion.

This week alone, American companies reported as many as 65,000 job cuts, and public anger is rising over reports of profligate spending by banks and investment firms that are receiving help from the $700 billion bailout fund. About half of that money is still available, but the new administration has yet to announce how it will use it, and many analysts think it will take far more to stabilize the banking system.

Should Mr. Obama have to go to Congress to seek more money for the bailout fund to avert the failure of more banks, he would most likely encounter opposition within both parties and demands for tighter restrictions on pay for executives of institutions that receive government assistance.

Mr. Geithner has already signaled a willingness to impose stricter compensation limits as part of a revamped approach to dealing with the banking crisis, but with his strong words on Thursday, Mr. Obama seemed intent on reassuring Congress and the public that he would step up the pressure on bankers before granting them additional assistance.

Mr. Obama was reacting to a report by the New York State comptroller that found financial executives had received an estimated $18.4 billion in bonuses for 2008, less than for the previous several years but the same level of bonuses as they received in 2004, when times were flush.

“That is the height of irresponsibility,” Mr. Obama said. “It is shameful. And part of what we’re going to need is for the folks on Wall Street who are asking for help to show some restraint and show some discipline and show some sense of responsibility.”

The Obama administration and lawmakers have begun to consider ways to control executive pay; the bailout fund, known as the Troubled Asset Relief Program, or TARP, would be the main vehicle for exerting such control. The administration of former President George W. Bush issued guidelines last October to try to control executive pay at companies receiving government help, but so far they have done little to curb large salaries.

During his confirmation hearings, Mr. Geithner said the administration is preparing rules that would require executives at companies receiving taxpayer money to agree that any compensation above a certain amount — he did not specify how much — be “paid in restricted stock or similar form” that could not be liquidated or sold until the government had been repaid.

Some lawmakers, meanwhile, have said they are considering so-called “clawback” provisions that could be invoked by the government to take back bonuses and executive pay from officials at companies that encountered problems.

In the meantime, public outrage is already forcing some companies to rein in their lavish spending. John A. Thain, the former Merrill Lynch executive who was forced out of Bank of America, said this week he would reimburse Bank of America for an expensive renovation of his office that included an $87,000 area rug and $35,000 commode.

But it took the urging of the Obama administration to force Citigroup, which received an infusion of taxpayer funds last year, to abandon plans to buy a $50 million corporate jet. On Thursday, Mr. Obama made reference to the jet, without singling out Citigroup by name; his remarks came one day after the president met at the White House with business leaders, including Richard D. Parsons, the new chairman of Citigroup.

On Capitol Hill, Senator Christopher J. Dodd of Connecticut, the chairman of the Senate Banking Committee, issued his own warning on Thursday, saying companies would be summoned to testify if taxpayer money was involved.

“Whether it was used directly or indirectly, this infuriates the American people and rightly so,” Mr. Dodd said. “So I say to anyone else who does it, if you do it, I’m going to bring you before the committee.”

There is also political pressure to rein in pay in industries beyond banks and investment firms. The pressure reflects the substantial disparities between pay increases for senior executives, the low rate of wage growth for workers and the frequent disconnect between compensation and the long-term strategic success or failure of corporations.

Mr. Obama’s message on Thursday was reinforced by Vice President Joseph R. Biden Jr., who pledged in an interview with CNBC and The New York Times that the government would spend the remaining $350 billion of the troubled assets money “wisely and prudently and transparently.”

Mr. Biden said that he, like the president, was outraged by reports of large bonuses going to Wall Street executives.

“I’d like to throw these guys in the brig,” he said. “They’re thinking the same old thing that got us here, greed. They’re thinking, ‘Take care of me.’  ”

John Harwood contributed reporting.

UPDATE

In Curbing Pay, Obama Seeks to Alter Corporate Culture

WASHINGTON — In announcing executive pay limits on Wednesday, President Obama is trying to hold the financial industry accountable to taxpayers while aiming to change an entrenched corporate culture that endorses outsize bonuses and perks that often bear little relationship to corporate performance.

Mr. Obama also needs to deflect a growing populist outrage over sky-high pay among the banks and other companies now on the public dole. His announcement comes just days before the administration is expected to unveil a new strategy — and possibly request more money from Congress — to guarantee or buy outright hundreds of billions of dollars in bad assets held by banks.

The new rules would set a $500,000 cap on cash compensation for the most senior executives, curtail severance pay when top executives left a company, restrict cashing in on stock incentives until government assistance was repaid and prod corporate boards to closely scrutinize luxury perquisites like private jets and country club memberships.

The plan’s effectiveness in curbing executive pay may not be known for years, however. Past administrations have also been critical of excessive pay, but corporate executives have found ingenious ways around limits, often hiring consultants to create new forms of compensation.

Even the new rules allow companies some leeway. While giving shareholders a say in bonuses above the cap and restricting when stock incentives can be cashed in, the rules do not place limits on the size of such awards, which have become the biggest part of many compensation packages. In addition, the toughest new rules apply only to large companies seeking government assistance to survive.

They do not apply to the more than 350 institutions that have already received bailout funds, only to those that seek aid under the next phase of the bailout program. And companies that seek aid but do not need exceptional government assistance can waive the $500,000 pay cap, as long as they submit their executive pay policies to a nonbinding shareholder vote.

Still, the rules represent the most comprehensive effort to curb compensation. “This is America,” Mr. Obama said on Wednesday. “We don’t disparage wealth. We don’t begrudge anybody for achieving success. And we believe that success should be rewarded. But what gets people upset — and rightfully so — are executives being rewarded for failure. Especially when those rewards are subsidized by U.S. taxpayers.”

In 2007, the latest year that figures are available, the largest participants in the bailout program paid their chief executives an average compensation of $11 million, including salary, bonus and benefits. Of that amount, according to a review by Equilar, an executive compensation firm, only about $844,000 was cash salary. About $2.5 million was in a cash bonus, with the bulk — $7.4 million — in stock awards, and the remainder in benefits and perks.

If banks return to the government for more money, the new rules would require a reduction in pay, but not in stock awards, though these would be subject to a non-binding vote of the shareholders and would be in the form of long-term incentives because of restrictions on when they could be cashed in.

The plan will most likely force companies to think twice before coming to Washington for a handout, and it is certain to nudge them to return taxpayer loans more quickly.

On Wednesday, for instance, David A. Viniar, the chief financial officer of Goldman Sachs, which received $10 billion from the Treasury Department, told analysts that his firm wanted to repay the government as quickly as feasible to “be under less scrutiny and under less pressure,” according to Bloomberg News.

The Financial Services Roundtable, which lobbies on behalf of banks and other financial institutions, said that giving shareholders a vote on pay could discourage companies from seeking aid.

The rules would not prohibit a lower-level executive, like a stock trader or investment banker, from continuing to receive tens of millions of dollars in pay. Officials also emphasized that several of the proposals would not be made final until after public comments had been considered.

Still, investor groups, union leaders and lawmakers in both parties embraced the proposal.

“There is absolutely no reason why hard-working American taxpayers should be financing, directly or indirectly, excessive compensation for corporate executives whose decisions, in many cases, have crippled their firms and weakened the broader economy,” said Senator Christopher J. Dodd, the Connecticut Democrat who heads the Senate banking committee.

Representative John A. Boehner of Ohio, the Republican minority leader, said that pay limits would be more equitable for rank-and-file taxpayers. “If anyone is looking for the taxpayer to help bail their company out,” he said, “these types of executive pay caps are appropriate.”

Officials said that the larger goal of the proposal was to make the boards of major corporations across a wide range of industries award pay packages more consistent with corporate earnings.

Appearing with Treasury Secretary Timothy F. Geithner, the architect of the plan, Mr. Obama repeated a theme that he began last week of attacking Wall Street for its excessive compensation.

“For top executives to award themselves these kinds of compensation packages in the midst of this economic crisis is not only in bad taste, it’s a bad strategy, and I will not tolerate it as president,” Mr. Obama said. He said such pay is “exactly the kind of disregard for the costs and consequences of their actions that brought about this crisis — a culture of narrow self-interest and short-term gain at the expense of everything else.”

During the Bush administration, the Securities and Exchange Commission adopted new rules promoting better public disclosure of executive compensation as a way to discourage pay not tied to performance. Treasury Secretary Henry M. Paulson Jr. also criticized excessive pay as a factor contributing to the crisis on Wall Street and tried to impose some limits on banks receiving bailout funds.

But none of that put a significant dent in executive pay. A recent study by Equilar, a compensation research firm, found that the chief executives of the 10 largest financial services firms in a survey of 200 companies with revenue of at least $6.5 billion were awarded a total of $320 million last year, even though the companies had mortgage-related losses of $55 billion.

Some companies may not find the new pay curbs all that burdensome. The plan does not limit the size of bonuses that can take the form of restricted stock above the $500,000 cap — though companies would have to give shareholders a nonbinding vote on such awards.

Indeed, troubled financial institutions are already giving executives significant sums of restricted stock — shares that are locked up for years and can be sold only under specified conditions — in part because they are trying to preserve cash. Alan Johnson, managing director of Johnson Associates, a Wall Street pay consulting firm, said that in some cases, restricted stock was making up 60 percent of executives’ total compensation.

Mr. Johnson said the new restrictions could make it harder for the government to resuscitate ailing firms by making it harder for them to retain and recruit talented executives.

The plan does not appear to prohibit a financial institution from sponsoring a major golf tournament that most of its executives attend as part of the company’s marketing strategy. At a White House briefing, senior officials repeatedly declined to answer whether the plan would prohibit a company like Citigroup from paying $400 million to have its name on a baseball stadium. It is also unclear whether lucrative pension plans would be banned.

The administration will have to determine how broadly to apply the most severe restrictions as the TARP program is revised. If the new strategy envisions that many banks will be eligible for assistance, as they have in the past, then the less restrictive pay rules would apply to them.

Eric Dash contributed reporting from New York, and Jeff Zeleny from Washington.

WASHINGTON — Without a single Republican vote, President Obama won House approval on Wednesday for an $819 billion economic recovery plan as Congressional Democrats sought to temper their own differences over the enormous package of tax cuts and spending.

As a piece of legislation, the two-year package is among the biggest in history, reflecting a broad view in Congress that urgent fiscal help is needed for an economy in crisis, at a time when the Federal Reserve has already cut interest rates almost to zero.

But the size and substance of the stimulus package remain in dispute, as House Republicans argued that it tilted heavily toward new spending instead of tax cuts.

All but 11 Democrats voted for the plan, and 177 Republicans voted against it. The 244-to-188 vote came a day after Mr. Obama traveled to Capitol Hill to seek Republican backing, if not for the package then on other issues to come.

Mr. Obama, in a statement hailing the House passage of the plan, did not take note of the partisan divide but signaled that he expected changes to be made in the Senate that might attract support.

“I hope that we can continue to strengthen this plan before it gets to my desk,” he said. “But what we can’t do is drag our feet or allow the same partisan differences to get in our way. We must move swiftly and boldly to put Americans back to work, and that is exactly what this plan begins to do.”

Mr. Obama followed the House vote with a cocktail party at the White House for the Congressional leaders of both parties, from the House and the Senate. The House Republicans, including the minority leader, Representative John A. Boehner of Ohio, were fresh from their votes against the recovery package.

The failure to win Republican support in the House seemed to echo the early months of the last Democratic administration, when President Bill Clinton in 1993 had to rely solely on Democrats to win passage of a deficit-reduction bill that was a signature element of his presidency.

Mr. Obama’s chief of staff, Rahm Emanuel, had met Tuesday night at the White House with 11 moderate House Republicans, none of whom ended up supporting the bill. “The most important number here for this recovery plan is how many jobs it produces, not how many votes it gets,” Mr. Emanuel said.

As Senate Democrats prepare to bring their version of the package to the floor on Monday, House Democrats and the administration indicated they would ultimately accept a provision in the emerging Senate package that would adjust the alternative minimum tax to hold down many middle-class Americans’ income taxes for 2009. The provision was not in the House legislation.

Its cost would drive the overall package’s tally to nearly $900 billion. That would exceed the roughly $850 billion limit that Mr. Obama has set for Congress, House Democratic leadership aides said, and leave no room for other proposals that senators of both parties are poised to seek during Senate debate next week.

While the House and Senate measures are similar, they are most likely to differ in ways that could snarl negotiations between Democrats from the two chambers, and delay getting a measure to the president. In particular, House and Senate Democrats are split over how to divide $87 billion in relief to the states for Medicaid, with senators favoring a formula more beneficial to less-populous states.

Democrats’ own differences aside, they also are under pressure from the White House to be open to proposals from Senate Republicans who might support the final legislation if their interests are accommodated, and which might draw a few Republican supporters on a final vote next month in the House.

The provision on the alternative minimum tax, for example, was a priority for Senator Charles E. Grassley, Republican of Iowa, who added it Tuesday in the Finance Committee’s work on the legislation.

Democrats’ goal is to have the stimulus package, which is roughly two-thirds new spending and one-third tax cuts, to Mr. Obama’s desk for his signature by Feb. 13, before Congress breaks for Presidents’ Day.

“He said he wanted action, bold and swift, and that is exactly what we’re doing today,” Speaker Nancy Pelosi, Democrat of California, said as debate began.

Democrats voluntarily dropped from the package several provisions that Republicans had singled out for derision in recent days, including money to restore the Jefferson Memorial and for family planning programs. But the day’s debate contrasted with the president’s conciliatory gestures.

Representative Virginia Foxx, Republican of North Carolina, said that former President George Bush’s signature tax cuts in 2001 had created years of growth but that the nation’s problems started when Democrats regained majorities in Congress in the 2006 elections.

Representative Steny H. Hoyer, Democrat of Maryland and the majority leader, said that “the economics that got us into this mess” were the Republicans’ policies for the six years that Republicans controlled both the White House and Congress, through 2006.

The House voted down several Republican proposals, including a substitute package made up entirely of tax cuts for individuals and businesses. Republicans did not say how much their package would cost, although Mr. Boehner said it would be far less than the Democratic plan. That tax-cut-only approach was defeated on a mostly party-line vote of 266 to 170; two Democrats joined all but nine moderate Republicans in voting for the Republican plan.

By another near-party-line vote, 270 to 159, the House rejected a Republican plan to delete a number of spending programs, including several representing top campaign promises of Mr. Obama, and to add instead $36 billion for highway construction, more than doubling the $30 billion in the bill, and $24 billion for Army Corps of Engineers projects.

After the final vote, Representative Eric Cantor of Virginia, the second-ranking House Republican, called the Democratic package “a spending bill beyond anyone’s imagination.”

Some Democrats seemed surprised that no Republicans voted for the measure.

“Not one person felt his or her district needed to have any of this assistance?” Representative Rosa DeLauro, Democrat of Connecticut, asked of the Republicans. “That can’t be.”

Brad Woodhouse, president of the union-supported, pro-Democratic group Americans United for Change, e-mailed a statement condemning the Republicans’ opposition under the subject line “Political Suicide.”

That $355 billion in spending isn’t about the economy.

The stimulus bill currently steaming through Congress looks like a legislative freight train, but given last week’s analysis by the Congressional Budget Office, it is more accurate to think of it as a time machine. That may be the only way to explain how spending on public works in 2011 and beyond will help the economy today.

According to Congressional Budget Office estimates, a mere $26 billion of the House stimulus bill’s $355 billion in new spending would actually be spent in the current fiscal year, and just $110 billion would be spent by the end of 2010. This is highly embarrassing given that Congress’s justification for passing this bill so urgently is to help the economy right now, if not sooner.

And the red Congressional faces must be very red indeed, because CBO’s analysis has since vanished into thin air after having been posted early last week on the Appropriations Committee Web site. Officially, the committee says this is because the estimates have been superseded as the legislation has moved through committee. No doubt.

AP

David Obey.

In addition to suppressing the CBO analysis, Democrats have derided it. Appropriations Chairman David Obey (D., Wis.) called it “off the wall,” never mind that CBO is now run by Democrats. Mr. Obey also suggested that it would be a mistake to debate the stimulus “until the cows come home.” We’d settle for a month or two, so at least the voters can inspect the various Congressional cattle they’re buying with that $355 billion.

The stimulus bill is also a time machine in the sense that it’s based on an old, and largely discredited, economic theory. As Harvard economist Robert Barro pointed out on these pages last Thursday, the “stimulus” claim is based on something called the Keynesian “multiplier,” which is that each $1 of spending the government “injects” into the economy yields 1.5 times that in greater output. There’s little evidence to support this theory, but you have to admire its beauty because it assumes the government can create wealth out of thin air. If it were true, the government should spend $10 trillion and we’d all live in paradise.

The problem is that the money for this spending boom has to come from somewhere, which means it is removed from the private sector as higher taxes or borrowing. For every $1 the government “injects,” it must take $1 away from someone else — either in taxes or by issuing a bond. In either case this leaves $1 less available for private investment or consumption. Mr. Barro wrote about this way back in 1974 in his classic article, “Are Government Bonds Net Wealth?”, in the Journal of Political Economy. Larry Summers and Paul Krugman must have missed it.

The government spending will be a net stimulus only if its $1 goes to more productive purposes than those to which private investors would have put that same $1. There are some ways we may want the government to spend money — on national defense, say — but that doesn’t mean it’s a stimulus.

A similar analysis applies to the tax cuts that are part of President Obama’s proposal. In contrast to the spending, at least the tax cuts will take effect immediately. But the problem is that Mr. Obama wants them to be temporary, which means taxpayers realize they will see no permanent increase in their after-tax incomes. Not being fools, Americans may either save or spend the money but they aren’t likely to change their behavior in ways that will spur growth. For Exhibit A, consider the failure of last February’s tax rebate stimulus, which was a bipartisan production of George W. Bush and Mr. Summers, who is now advising Mr. Obama.

To be genuinely stimulating, tax cuts need to be immediate, permanent and on the “margin,” meaning that they apply to the next dollar of income that an individual or business earns. This was the principle behind the Kennedy tax cuts of 1964, as well as the Reagan tax cuts of 1981, which finally took full effect on January 1, 1983.

If the Obama Democrats can’t abide this because it’s a “tax cut for the rich,” as an alternative they could slash the corporate tax to spur business incentives. The revenue cost of eliminating the corporate tax wouldn’t be any more than their proposed $355 billion in new spending, and we guarantee its “multiplier” effects on growth would be far greater. Research by Mr. Obama’s own White House chief economist, Christina Romer, has shown that every $1 in tax cuts can increase output by as much as $3.

As for all of that new spending, CBO will release an updated analysis this week. And we anticipate that the budget analysts will in the interim have discovered that much more of that $355 billion will somehow find its way to “shovel-ready” projects that the Obama Administration can start building before the crocuses bloom. But in the real world, the CBO’s first estimate is likely to prove closer to the truth.

The spending portion of the stimulus, in short, isn’t really about the economy. It’s about promoting long-time Democratic policy goals, such as subsidizing health care for the middle class and promoting alternative energy. The “stimulus” is merely the mother of all political excuses to pack as much of this spending agenda as possible into a single bill when Mr. Obama is at his political zenith.

Apart from the inevitable waste, the Democrats are taking a big political gamble here. Congress and Mr. Obama are promoting this stimulus as the key to economic revival. Americans who know nothing about multipliers or neo-Keynesians expect it to work. The Federal Reserve is pushing trillions of dollars of monetary stimulus into the economy, and perhaps that along with a better bank rescue strategy will make the difference. But if spring and then summer arrive, and the economy is still in recession, Americans are going to start asking what they bought for that $355 billion.

CARACAS, Venezuela — President Hugo Chávez, buffeted by falling oil prices that threaten to damage his efforts to establish a Socialist-inspired state, is quietly courting Western oil companies once again.

Until recently, Mr. Chávez had pushed foreign oil companies here into a corner by nationalizing their oil fields, raiding their offices with tax authorities and imposing a series of royalties increases.

But faced with the plunge in prices and a decline in domestic production, senior officials have begun soliciting bids from some of the largest Western oil companies in recent weeks — including Chevron, Royal Dutch/Shell and Total of France — promising them access to some of the world’s largest petroleum reserves, according to energy executives and industry consultants here.

Their willingness to even consider investing in Venezuela reflects the scarcity of projects open to foreign companies in other top oil nations, particularly in the Middle East.

But the shift also shows how the global financial crisis is hampering Mr. Chávez’s ideological agenda and demanding his pragmatic side. At stake are no less than Venezuela’s economic stability and the sustainability of his rule. With oil prices so low, the longstanding problems plaguing Petróleos de Venezuela, the national oil company that helps keep the country afloat, have become much harder to ignore.

Embracing the Western companies may be the only way to shore up Petróleos de Venezuela and the raft of social welfare programs, like health care and higher education for the poor, that have been made possible by oil proceeds and have helped bolster his popular support.

“If re-engaging with foreign oil companies is necessary to his political survival, then Chávez will do it,” said Roger Tissot, an authority on Venezuela’s oil industry at Gas Energy, a Brazilian consulting company focusing on Latin America. “He is a military man who understands losing a battle to win the war.”

While the new oil projects would not be completed for years, Mr. Chávez is already looking beyond the end of his current term in 2012 by putting forward a referendum, expected as early as next month, that would let him run for indefinite re-election.

In recent years, Mr. Chávez has preferred partnerships with national oil companies from countries like Iran, China and Belarus. But these ventures failed to reverse Venezuela’s declining oil output. State-controlled oil companies from other nations have also been invited to bid this time, but the large private companies are seen as having an advantage, given their expertise in building complex projects in Venezuela and elsewhere in years past.

The bidding process was first conceived last year when oil prices were higher but Petróleos de Venezuela’s production decline was getting impossible to overlook. Still, the process is moving into high gear only this month, with the authorities here expected to start reviewing the companies’ bidding plans on new areas of the Orinoco Belt, an area in southern Venezuela with an estimated 235 billion barrels of recoverable oil. Altogether, more than $20 billion in investment could be required to assemble devilishly complex projects capable of producing a combined 1.2 million barrels of oil a day.

Mr. Chávez’s olive branch to Western oil companies comes after he nationalized their oil fields in 2007. Two companies, Exxon Mobil and ConocoPhillips, left Venezuela and are still waging legal battles over lost projects.

But Venezuela may have little choice but to form new ventures with foreign oil companies. Nationalizations in other sectors, like agriculture and steel manufacturing, are fueling capital flight, leaving Venezuela reliant on oil for about 93 percent of its export revenue in 2008, up from 69 percent in 1998 when Mr. Chávez was first elected.

In the past year, with higher oil prices paving the way, Mr. Chávez also vastly expanded Petróleos de Venezuela’s power, inextricably linking it to his political program. He directed the oil company to build roads, import and distribute food, build docks and shipyards and set up a light-bulb factory. He even expanded it into areas like milk production, soybean farming and the training of athletes after a weak performance at the Beijing Olympics.

One of the oil company’s ventures sells subsidized food and extols Mr. Chávez’s leadership at its stores across Venezuela. At one frenzied store in eastern Caracas, posters hung from the ceiling last Saturday showing Mr. Chávez arm in arm with children beneath the heading, “fortifying agrarian socialism.”

Petróleos de Venezuela has also carried out nationalizations in other industries, absorbing companies like Electricidad de Caracas, the utility serving this city of five million. Top executives like Eulogio del Pino, the Stanford-educated vice president for exploration and production, spent much of 2008 negotiating unfinished deals like the takeover of a cement company.

But all the while, Petróleos de Venezuela has faced its own difficulties. It claimed it produced about 3.3 million barrels a day throughout most of 2008. But other sources, like OPEC, of which Venezuela is a member, place the figure closer to 2.3 million and show a fall of about 100,000 barrels a day from a year earlier. When Mr. Chávez rose to power a decade ago, Venezuela was producing about 3.4 million barrels a day.

Rafael Ramírez, the energy minister and president of Petróleos de Venezuela, did not respond to requests for an interview. But energy executives here with contacts within Petróleos de Venezuela said Mr. Ramírez, a confidant of Mr. Chávez, has been waging a struggle within the company to refocus operations toward producing more oil.

After weathering the turmoil of recent years, Western oil companies here are loath to speak publicly about their plans. “We don’t elaborate on bidding processes beyond the fact that we evaluate every opportunity and our decisions will be based on economics and other factors,” said Scott Walker, a spokesman for Chevron.

But energy executives here speak with restrained optimism. Nineteen companies paid $2 million each last month for data on areas open for exploration, twice what such data costs elsewhere.

Oil companies say they recognize the risk of investing in Venezuela, given the country’s abrupt shifts in the past. But they focus on the long-term potential of its petroleum reserves. Venezuela poses little risk in the search for oil since geologists have known for years where it lies in the Orinoco Belt.

Venezuela also differs from top oil nations like Saudi Arabia and Mexico, where national oil companies have monopolies. Petróleos de Venezuela let private companies remain as minority partners after the nationalizations, despite Mr. Chávez’s often aggressive anticapitalist stance.

Moreover, foreign oil services companies like Halliburton, which has done business in Venezuela for 70 years, have even expanded their activities in the country as Petróleos de Venezuela grew more dependent on contractors to help extract oil from aging wells.

Still, doubts persist over the chances that the new bids, which are set to conclude in June, will ultimately result in finished oil projects. Risks of operating here were underscored again last week when Venezuela ordered new production cuts along with other OPEC members, impacting ventures with private partners.

Under the current bidding rules, the onus for financing the new projects lies with the foreign companies, even though Petróleos de Venezuela would maintain control. Banks might balk at such a prospect. Distrust also lingers in dealing with Petróleos de Venezuela.

“An agreement on a piece of paper means nothing in Venezuela because of the way Chávez abruptly changes the rules of the game,” said a Venezuelan oil executive who has had dealings with oil companies from China, Russia and other countries.

“In 10 years, not one major oil project has been built in Venezuela,” said the oilman, who asked not to be identified for fear of retribution. “Chávez has left his so-called strategic partners out to dry, like the Chinese, who have been given the same treatment as Exxon.”

But the severity of the drop in oil prices may ultimately dictate the terms on which Venezuela re-engages with foreign oil companies.

“Chávez is celebrating the demise of capitalism as this international crisis unfolds,” said Pedro Mario Burelli, a former board member of Petróleos de Venezuela. “But the irony is that capitalism actually fed his system in times of plenty,” he said. “That is something Chávez will discover the hard way.”

María Eugenia Díaz and Thom Walker contributed reporting

María Eugenia Díaz and Thom Walker contributed reporting.

By Rich Noyes

January 13, 200

By Reed Galen

As President-Elect Obama readies his ascent to the White House less than two weeks from now, it appears that his political acumen extends not only to those in all parts of the Democratic party, but in no small part to Senator John McCain as well. Just three short months ago we were inundated with McCain’s talk of Bill Ayres and ‘That One,’ but an easy détente appears to have developed between the former rivals.

To that end, President-Elect Obama has committed four distinct acts that telegraph his political savvy when it comes to Senator McCain. His first move was to invite McCain to Chicago for a face-to-face meeting soon after the election. This magnanimous and post-partisan action surely played to McCain’s sense that politics has gotten far too ugly for its own good and was probably much appreciated as a sign of respect for the Arizonan personally.

Next, Obama selected Janet Napolitano to head the Department of Homeland Security. Aside from being qualified for the job on a number of fronts (former US Attorney, state Attorney General, Governor of Arizona, a major border state, etc.) the Obama team again did Senator McCain a favor. With Napolitano firmly ensconced at the Nebraska Avenue headquarters of DHS, Senator McCain’s toughest potential opposition to re-election in 2010 is out of the picture. Having already announced his intention to seek another term in the Senate, this will allow McCain to carry out his Goldwater-esque desire to bring centrism and civility to the Senate and to the GOP.

In another act that was both gracious and pragmatic, the President-Elect helped ensure that Senator Joe Lieberman would retain his Chairmanship of the Senate Homeland Security Committee. This after Lieberman spent almost two years on the campaign trail in support of his friend John McCain. Rarely hesitating in his criticism of the Obama campaign, Lieberman is lucky to be invited to sit with either caucus.

Lastly, Obama announced that he had selected former Congressman Ray LaHood, a Republican from Illinois, as his Transportation Secretary. Aside from having oversight over that department when he was the Senate Commerce Committee chairman, McCain and LaHood are good friends. McCain must have been pleased with such a choice.

Why, though, would the President-Elect go to all the trouble of giving so much consideration to an opponent whom he soundly defeated? Continuing the thread of wise political judgment that has so far defined his transition, Obama understands that having John McCain as an ally in the United States Senate is a major boon to his policy initiatives. As the recent standard-bearer for the GOP, McCain will be enormously helpful; any Republican imprimatur on Obama legislation could help clear stubborn obstacles. The prospect of having a troika of votes in the Senate (McCain, Lieberman and Lindsay Graham) may have also played into the strategy; pushing a bill from 58 or 59 to the magic level of 60 votes is invaluable as the Democrats stand on the cusp of their magic number.

From Senator McCain’s perspective, this scenario would allow him to return to the role he truly relishes: Being the deal-maker or swing vote in the Senate is much more his style and most importantly to him, keeps him imminently relevant. Acting as manager or administrator is not in McCain’s make-up, nor did he ever seem to enjoy the prospect of having to play that part. In addition, much like the aftermath of the 2000 campaign, 2009 finds John McCain not much a fan of the conservative wing of the GOP nor they of him. In 2001 he went out of his way to break with President Bush and Republicans on tax cuts and spending.

Once again Barack Obama has shown that in addition to his abundant charisma and soaring oratory, he possess deft political skills. One would be hard-pressed to find another recent example of a President (-Elect) and his opponent in the Presidential contest willing to work together, at least in theory. What’s more, now is legacy time for John McCain. With his almost assured re-election next year, it will not be much of a surprise if McCain, more often than not, turns out to be an ally of the Obama Administration.

President-elect Barack Obama plans to issue an executive order on his first full day in office directing the closing of the Guantánamo Bay detention camp in Cuba, people briefed by Obama transition officials said Monday.

But experts say it is likely to take many months, perhaps as long as a year, to empty the prison that has drawn international criticism since it received its first prisoners seven years ago this week. One transition official said the new administration expected that it would take several months to transfer some of the remaining 248 prisoners to other countries, decide how to try suspects and deal with the many other legal challenges posed by closing the camp.

People who have discussed the issues with transition officials in recent weeks said it appeared that the broad outlines of plans for the detention camp were taking shape. They said transition officials appeared committed to ordering an immediate suspension of the Bush administration’s military commissions system for trying detainees.

In addition, people who have conferred with transition officials said the incoming administration appeared to have rejected a proposal to seek a new law authorizing indefinite detention inside the United States. The Bush administration has insisted that such a measure is necessary to close the Guantánamo camp and bring some detainees to the United States.

Mr. Obama has repeatedly said he wants to close the camp. But in an interview on Sunday on ABC, he indicated that the process could take time, saying, “It is more difficult than I think a lot of people realize.” Closing it within the first 100 days of his administration, he said, would be “a challenge.”

The president-elect drew criticism from some human rights groups Monday who said his remarks suggested that closing Guantánamo was not among the new administration’s highest priorities. But even if the detention camp remains open for months, the decision to address Guantánamo on the day after his inauguration seemed intended to make a symbolic break with some of the most controversial policies of the Bush administration.

Several national security and legal analysts have argued in recent weeks that Mr. Obama is in a delicate political position after having committed himself to closing the prison. Sarah Mendelson, the author of a report for the Center for Strategic and International Studies on how to close the prison, said Mr. Obama’s remarks on Sunday appeared intended to indicate the difficulty of the task, which she said it could take a year to complete.

“I thought he was trying to manage expectations of how quickly those detainees who remain can be sorted into two categories: those who will be released and those who will be prosecuted,” Ms. Mendelson said.

Aside from analyzing intelligence and legal filings on each of the remaining detainees, diplomats and legal experts have said the new administration will need to begin an extensive new international effort to resettle as many as 150 or more of the remaining men. Portugal and other European countries have recently broken a long diplomatic standoff, saying they would work with the new administration and might accept some detainees who cannot be sent to their home countries because of concerns about their potential treatment.

The transition official, who asked for anonymity because he was not authorized to discuss the plans, said the administration expected to announce its Guantánamo plans next Wednesday.

Brooke Anderson, a transition spokeswoman, declined to comment on any plans, saying only, “President-elect Obama has repeatedly said that he believes that the legal framework at Guantánamo has failed to successfully and swiftly prosecute terrorists, and he shares the broad bipartisan belief that Guantánamo should be closed.”

In formulating their policy in recent weeks, Obama transition officials have consulted with a variety of authorities on legal and human rights and with military experts. Several of those experts said the officials had expressed great interest in alternatives to the military commission system, like trying detainees in federal courts, and appeared to have grown hostile to proposals like an indefinite detention law.

They also said the transition officials were intensely focused on new international efforts to transfer many of the detainees to other countries.

Several said the officials appeared concerned that a proposal for a new law authorizing indefinite detention would bring the new administration much of the criticism that has been directed at the Bush administration over Guantánamo. A former military official who was part of a series of briefings at the transition headquarters in Washington said the officials had spoken about the indefinite detention proposal as a way of creating a “new Guantanámo someplace else.”

“That is very much not the desire of the Obama team,” said the former military official, who insisted on anonymity because of his concerns about how the transition officials would react to public discussion of their comments.

Catherine Powell, an associate professor of law at Fordham, said transition officials appeared most interested at a meeting last month in showing international critics that they were returning to what they see as traditional American legal values.

“They are really looking for tools that we have in our existing system short of creating an indefinite detention system,” Ms. Powell said.

Mark P. Denbeaux, a Seton Hall law professor who has been a prominent lawyer for Guantánamo detainees, said that at a briefing he attended with senior officials of the transition last month the officials seemed to have decided to suspend the military commissions immediately.

“Their position is they’re a complete and utter failure,” Mr. Denbeaux said.

The Pentagon has been pressing ahead with plans to begin a trial on Jan. 26 of one of its high-profile suspects, a Canadian detainee named Omar Khadr. Mr. Khadr’s case has drawn wide attention, partly because he was 15 when he was first detained on charges of killing an American soldier in a firefight in Afghanistan in 2002.

Some human rights groups said Monday that they were alarmed by Mr. Obama’s vague timetable and lack of specifics in his remarks Sunday. They said they worried that the administration might yield to pressure to display its toughness in dealing with terrorism in its detention policies.

“The devil is in the details,” said Anthony D. Romero, the executive director of the American Civil Liberties Union, who has been pressing the new administration to publicly commit to immediately close Guantánamo.

Mr. Romero said he had grown concerned because transition officials had provided details of their plans for dealing with the economic crisis, but had yet to provide details for how they will close Guantánamo, which has brought worldwide criticism.

“Just like we need specifics on an economic recovery package,” Mr. Romero said, “we need specifics on a ‘justice recovery package.’ ”

WASHINGTON — President Bush deflected a secret request by Israel last year for specialized bunker-busting bombs it wanted for an attack on Iran’s main nuclear complex and told the Israelis that he had authorized new covert action intended to sabotage Iran’s suspected effort to develop nuclear weapons, according to senior American and foreign officials.

White House officials never conclusively determined whether Israel had decided to go ahead with the strike before the United States protested, or whether Prime Minister Ehud Olmert of Israel was trying to goad the White House into more decisive action before Mr. Bush left office. But the Bush administration was particularly alarmed by an Israeli request to fly over Iraq to reach Iran’s major nuclear complex at Natanz, where the country’s only known uranium enrichment plant is located.

The White House denied that request outright, American officials said, and the Israelis backed off their plans, at least temporarily. But the tense exchanges also prompted the White House to step up intelligence-sharing with Israel and brief Israeli officials on new American efforts to subtly sabotage Iran’s nuclear infrastructure, a major covert program that Mr. Bush is about to hand off to President-elect Barack Obama.

This account of the expanded American covert program and the Bush administration’s efforts to dissuade Israel from an aerial attack on Iran emerged in interviews over the past 15 months with current and former American officials, outside experts, international nuclear inspectors and European and Israeli officials. None would speak on the record because of the great secrecy surrounding the intelligence developed on Iran.

Several details of the covert effort have been omitted from this account, at the request of senior United States intelligence and administration officials, to avoid harming continuing operations.

The interviews also suggest that while Mr. Bush was extensively briefed on options for an overt American attack on Iran’s facilities, he never instructed the Pentagon to move beyond contingency planning, even during the final year of his presidency, contrary to what some critics have suggested.

The interviews also indicate that Mr. Bush was convinced by top administration officials, led by Defense Secretary Robert M. Gates, that any overt attack on Iran would probably prove ineffective, lead to the expulsion of international inspectors and drive Iran’s nuclear effort further out of view. Mr. Bush and his aides also discussed the possibility that an airstrike could ignite a broad Middle East war in which America’s 140,000 troops in Iraq would inevitably become involved.

Instead, Mr. Bush embraced more intensive covert operations actions aimed at Iran, the interviews show, having concluded that the sanctions imposed by the United States and its allies were failing to slow the uranium enrichment efforts. Those covert operations, and the question of whether Israel will settle for something less than a conventional attack on Iran, pose immediate and wrenching decisions for Mr. Obama.

The covert American program, started in early 2008, includes renewed American efforts to penetrate Iran’s nuclear supply chain abroad, along with new efforts, some of them experimental, to undermine electrical systems, computer systems and other networks on which Iran relies. It is aimed at delaying the day that Iran can produce the weapons-grade fuel and designs it needs to produce a workable nuclear weapon.

Knowledge of the program has been closely held, yet inside the Bush administration some officials are skeptical about its chances of success, arguing that past efforts to undermine Iran’s nuclear program have been detected by the Iranians and have only delayed, not derailed, their drive to unlock the secrets of uranium enrichment.

Late last year, international inspectors estimated that Iran had 3,800 centrifuges spinning, but American intelligence officials now estimate that the figure is 4,000 to 5,000, enough to produce about one weapon’s worth of uranium every eight months or so.

While declining to be specific, one American official dismissed the latest covert operations against Iran as “science experiments.” One senior intelligence official argued that as Mr. Bush prepared to leave office, the Iranians were already so close to achieving a weapons capacity that they were unlikely to be stopped.

Others disagreed, making the point that the Israelis would not have been dissuaded from conducting an attack if they believed that the American effort was unlikely to prove effective.

Since his election on Nov. 4, Mr. Obama has been extensively briefed on the American actions in Iran, though his transition aides have refused to comment on the issue.

Early in his presidency, Mr. Obama must decide whether the covert actions begun by Mr. Bush are worth the risks of disrupting what he has pledged will be a more active diplomatic effort to engage with Iran.

Either course could carry risks for Mr. Obama. An inherited intelligence or military mission that went wrong could backfire, as happened to President Kennedy with the Bay of Pigs operation in Cuba. But a decision to pull back on operations aimed at Iran could leave Mr. Obama vulnerable to charges that he is allowing Iran to speed ahead toward a nuclear capacity, one that could change the contours of power in the Middle East.

An Intelligence Conflict

Israel’s effort to obtain the weapons, refueling capacity and permission to fly over Iraq for an attack on Iran grew out of its disbelief and anger at an American intelligence assessment completed in late 2007 that concluded that Iran had effectively suspended its development of nuclear weapons four years earlier.

That conclusion also stunned Mr. Bush’s national security team — and Mr. Bush himself, who was deeply suspicious of the conclusion, according to officials who discussed it with him.

The assessment, a National Intelligence Estimate, was based on a trove of Iranian reports obtained by penetrating Iran’s computer networks.

Those reports indicated that Iranian engineers had been ordered to halt development of a nuclear warhead in 2003, even while they continued to speed ahead in enriching uranium, the most difficult obstacle to building a weapon.

The “key judgments” of the National Intelligence Estimate, which were publicly released, emphasized the suspension of the weapons work.

The public version made only glancing reference to evidence described at great length in the 140-page classified version of the assessment: the suspicion that Iran had 10 or 15 other nuclear-related facilities, never opened to international inspectors, where enrichment activity, weapons work or the manufacturing of centrifuges might be taking place.

The Israelis responded angrily and rebutted the American report, providing American intelligence officials and Adm. Mike Mullen, the chairman of the Joint Chiefs of Staff, with evidence that they said indicated that the Iranians were still working on a weapon.

While the Americans were not convinced that the Iranian weapons development was continuing, the Israelis were not the only ones highly critical of the United States report. Secretary Gates, a former director of the Central Intelligence Agency, said the report had presented the evidence poorly, underemphasizing the importance of Iran’s enrichment activity and overemphasizing the suspension of a weapons-design effort that could easily be turned back on.

In an interview, Mr. Gates said that in his whole career he had never seen “an N.I.E. that had such an impact on U.S. diplomacy,” because “people figured, well, the military option is now off the table.”

Prime Minister Olmert came to the same conclusion. He had previously expected, according to several Americans and Israeli officials, that Mr. Bush would deal with Iran’s nuclear program before he left office. “Now,” said one American official who bore the brunt of Israel’s reaction, “they didn’t believe he would.”

Attack Planning

Early in 2008, the Israeli government signaled that it might be preparing to take matters into its own hands. In a series of meetings, Israeli officials asked Washington for a new generation of powerful bunker-busters, far more capable of blowing up a deep underground plant than anything in Israel’s arsenal of conventional weapons. They asked for refueling equipment that would allow their aircraft to reach Iran and return to Israel. And they asked for the right to fly over Iraq.

Mr. Bush deflected the first two requests, pushing the issue off, but “we said ‘hell no’ to the overflights,” one of his top aides said. At the White House and the Pentagon, there was widespread concern that a political uproar in Iraq about the use of its American-controlled airspace could result in the expulsion of American forces from the country.

The Israeli ambassador to the United States, Sallai Meridor, declined several requests over the past four weeks to be interviewed about Israel’s efforts to obtain the weapons from Washington, saying through aides that he was too busy.

Last June, the Israelis conducted an exercise over the Mediterranean Sea that appeared to be a dry run for an attack on the enrichment plant at Natanz. When the exercise was analyzed at the Pentagon, officials concluded that the distances flown almost exactly equaled the distance between Israel and the Iranian nuclear site.

“This really spooked a lot of people,” one White House official said. White House officials discussed the possibility that the Israelis would fly over Iraq without American permission. In that case, would the American military be ordered to shoot them down? If the United States did not interfere to stop an Israeli attack, would the Bush administration be accused of being complicit in it?

Admiral Mullen, traveling to Israel in early July on a previously scheduled trip, questioned Israeli officials about their intentions. His Israeli counterpart, Lt. Gen. Gabi Ashkenazi, argued that an aerial attack could set Iran’s program back by two or three years, according to officials familiar with the exchange. The American estimates at the time were far more conservative.

Yet by the time Admiral Mullen made his visit, Israeli officials appear to have concluded that without American help, they were not yet capable of hitting the site effectively enough to strike a decisive blow against the Iranian program.

The United States did give Israel one item on its shopping list: high-powered radar, called the X-Band, to detect any Iranian missile launchings. It was the only element in the Israeli request that could be used solely for defense, not offense.

Mr. Gates’s spokesman, Geoff Morrell, said last week that Mr. Gates — whom Mr. Obama is retaining as defense secretary — believed that “a potential strike on the Iranian facilities is not something that we or anyone else should be pursuing at this time.”

A New Covert Push

Throughout 2008, the Bush administration insisted that it had a plan to deal with the Iranians: applying overwhelming financial pressure that would persuade Tehran to abandon its nuclear program, as foreign enterprises like the French company Total pulled out of Iranian oil projects, European banks cut financing, and trade credits were squeezed.

But the Iranians were making uranium faster than the sanctions were making progress. As Mr. Bush realized that the sanctions he had pressed for were inadequate and his military options untenable, he turned to the C.I.A. His hope, several people involved in the program said, was to create some leverage against the Iranians, by setting back their nuclear program while sanctions continued and, more recently, oil prices dropped precipitously.

There were two specific objectives: to slow progress at Natanz and other known and suspected nuclear facilities, and keep the pressure on a little-known Iranian professor named Mohsen Fakrizadeh, a scientist described in classified portions of American intelligence reports as deeply involved in an effort to design a nuclear warhead for Iran.

Past American-led efforts aimed at Natanz had yielded little result. Several years ago, foreign intelligence services tinkered with individual power units that Iran bought in Turkey to drive its centrifuges, the floor-to-ceiling silvery tubes that spin at the speed of sound, enriching uranium for use in power stations or, with additional enrichment, nuclear weapons.

A number of centrifuges blew up, prompting public declarations of sabotage by Iranian officials. An engineer in Switzerland, who worked with the Pakistani nuclear black-marketeer Abdul Qadeer Khan, had been “turned” by American intelligence officials and helped them slip faulty technology into parts bought by the Iranians.

What Mr. Bush authorized, and informed a narrow group of Congressional leaders about, was a far broader effort, aimed at the entire industrial infrastructure that supports the Iranian nuclear program. Some of the efforts focused on ways to destabilize the centrifuges. The details are closely held, for obvious reasons, by American officials. One official, however, said, “It was not until the last year that they got really imaginative about what one could do to screw up the system.”

Then, he cautioned, “none of these are game-changers,” meaning that the efforts would not necessarily cripple the Iranian program. Others in the administration strongly disagree.

In the end, success or failure may come down to how much pressure can be brought to bear on Mr. Fakrizadeh, whom the 2007 National Intelligence Estimate identifies, in its classified sections, as the manager of Project 110 and Project 111. According to a presentation by the chief inspector of the International Atomic Energy Agency, those were the names for two Iranian efforts that appeared to be dedicated to designing a warhead and making it work with an Iranian missile. Iranian officials say the projects are a fiction, made up by the United States.

While the international agency readily concedes that the evidence about the two projects remains murky, one of the documents it briefly displayed at a meeting of the agency’s member countries in Vienna last year, from Mr. Fakrizadeh’s projects, showed the chronology of a missile launching, ending with a warhead exploding about 650 yards above ground — approximately the altitude from which the bomb dropped on Hiroshima was detonated.

The exact status of Mr. Fakrizadeh’s projects today is unclear. While the National Intelligence Estimate reported that activity on Projects 110 and 111 had been halted, the fear among intelligence agencies is that if the weapons design projects are turned back on, will they know?

David E. Sanger is the chief Washington correspondent for The New York Times. Reporting for this article was developed in the course of research for “The Inheritance: The World Obama Confronts and the Challenges to American Power,” to be published Tuesday by Harmony Books.

The Democrats are folding like an ironing board over this Roland Burris business, and for some reason people are surprised.

Just to catch up: The governor of Illinois, Rod Blagojevich, is in scalding-hot water over allegations he wanted to sell Barack Obama’s still-warm Senate seat. This was discovered via federal wiretaps of the helmet-haired governor’s phone conversations and fueled by some juicy dialogue better suited for fleet week in Manila.

In response, Senate Democrats took a Churchillian stand, vowing that no Blago appointee would ever be accepted by the Senate. No appointee, the Democrats insisted, so tainted with scandal could be allowed to sit in the same chamber that Ted Kennedy calls home.

The party of the infinitely elastic “living Constitution” suddenly planted their flag of principle in the terra firma of constitutional concrete and watched it flap in the hot wind of their political bloviation. Even after Blagojevich announced he was appointing Roland Burris, a respected but unremarkable black Illinois politician, to Obama’s seat, Senate Majority Leader Harry Reid of Nevada stood his ground, pronouncing the move “unacceptable.”

But that resolve melted like a Hershey bar in a Nevada parking lot the moment Mr. Burris came to Washington. Apparently, the Constitution wasn’t on the Democrats’ side (Fancy that!) and liberals lacked the stomach to stand in the doorway of the Capitol and block admittance of a black man.

Indeed, that was Blago’s thinking all along. When the Democratic governor announced his decision, he assembled various black Illinois pols to support the move, including Rep. Bobby Rush, a Democrat from Chicago’s South Side and a founder of the Illinois chapter of the Black Panther Party. Rush immediately played the race card at the press conference. “There are no African-Americans in the U.S. Senate. And I don’t think any U.S. senator who’s sitting in the Senate right now wants to go on record to deny one African-American from being seated in the U.S. Senate,” he said.

In case you needed a ball peen hammer to drive the point into your forehead, he added: “I would ask you to not hang or lynch the appointee as you try to castigate the appointer …”

Rush assembled more than 60 black ministers Sunday to rally around Burris at a Chicago church. “We are just faced with a hard-headed room of people in the Senate who want to keep an African-American out of the Senate,” Rush said. He condemned the Senate, where until recently Barack Obama served before becoming president of the United States, as “the last bastion of plantation politics.”

And that was all she wrote for Reid, who by next week should be on all fours like Kevin Bacon in “Animal House,” shouting, “Thank you sir! May I have another?” as Burris paddles him.

Now, I certainly understand why Reid & Co. caved. For starters, Reid’s not exactly the brightest crayon in the box.

But why all the fuss in the first place? Isn’t this how it always works? The Atlantic’s Ta-Nehisi Coates, an impressive African-American writer, is amazed that “Reid has been outmaneuvered by the sort of overt, ham-fisted identity politics deployed in the ’70s.”

The ’70s? So this sort of thing stopped more than three decades ago? I had no idea. What planet do my newscasts come from?

I thought this was simply what liberals and Democrats do. When Newt Gingrich introduced the Contract with America, black Democrats denounced it as racist. Charlie Rangel proclaimed, “Hitler wasn’t even talking about doing these things.” When impeachment threatened Bill Clinton, he draped himself in black ministers and staffers. The NAACP ran an ad narrated by the daughter of James Byrd, a black man brutally murdered in a hate crime, insinuating that then-presidential candidate George W. Bush’s refusal to support hate-crime legislation in Texas was like murdering her father again. In the recent campaign, nearly the entire liberal punditocracy insisted that opposition to Barack Obama could only be explained by racism, a story line egged on by Obama himself when convenient.

And don’t tell me Blago’s corruption changes the equation. Has anyone read about the baleful history of minority set-aside programs in cities like Chicago? Cronies and grifters are routinely given sweetheart contracts under the guise of fighting discrimination when in reality it’s all a riot of kickbacks, “pay-to-play” and cronyism. People don’t call Jesse Jackson a shakedown artist for nothing.

There are two reasons why this spectacle shocks some liberals. The first is that Blago, Burris and Rush used this tactic on fellow Democrats. And since Democrats can’t be motivated by racism, any ploy like this must be cynical. When the same gambit is used on Republicans, it’s called “speaking truth to power.” Second, some honestly believed that Obama represented a real change of the racial landscape. So far, alas, these folks just look naive.

Jonah Goldberg is editor-at-large of National Review Online. His e-mail address is jonahscolumn@aol.com.

David S. Broder

It was not lost on anyone that the president-elect of the United States, riding the crest of his popularity, and the Democratic leadership of the U.S. Senate were outsmarted last week by a state politician who won his last election almost 20 years ago.

When and if Roland Burris claims the Senate seat from Illinois formerly occupied by Barack Obama, it will represent the greatest climb-down by an incoming president since Sam Nunn turned Bill Clinton around on the issue of gays in the military at the start of Clinton’s first term.

Fortunately for Obama, the voters are much more concerned with the economy and Obama’s effort to fix it than they are with the infighting over the Illinois Senate seat.

But politicians keep score on each other all the time. And, after a near-perfect month of transition operations, Obama has stumbled twice in two weeks, first being caught unaware by the investigation of Bill Richardson, his choice for commerce secretary, and then being outmaneuvered by Burris and his tawdry sponsor, Gov. Rod Blagojevich.

There are lessons for Obama in both incidents, starting with the importance of really knowing the other players in the game. Obama has had such a rapid rise in national politics that there are many key figures in both parties he barely has had time to size up.

But Richardson was a familiar fellow traveler on the 2007-08 presidential campaign trail, and Obama should have known that there were reports of a grand jury investigation of pay-for-play in New Mexico.

As for Blagojevich, Obama had to know, from his years in Springfield and Chicago, about the governor’s tawdry and ruthless reputation. But Obama seriously underestimated him.

Harry Reid, the Senate majority leader, got all 50 members of his caucus to sign a statement vowing they would never accept a Senate appointee from Blagojevich’s tainted hands, after prosecutors had published excerpts of wiretaps in which the governor had salivated obscenely over the way he could cash in on Obama’s Senate vacancy.

Obama personally endorsed that hard-line stand against seating anyone “tainted” by Blagojevich, issuing a statement that backed Reid and the others. But Burris was no more impressed than Blagojevich had been.

When the governor called the senators’ bluff, Burris launched a public relations blitz on television, insisting that it would be unfair to punish him for the governor’s alleged sins. Ignored for the moment was the fact that Burris had been rejected by the voters in three straight Illinois Democratic gubernatorial races and in one primary for mayor of Chicago. Had the Democrat-controlled Legislature ordered a special election, the odds against Burris would have been enormous.

But Burris’ ego is limitless. And it turned out that Reid had, once again, failed to do his homework or line up his votes. When Chicago black congressman Bobby Rush played the race card, questioning why anyone would stand in the way of Burris succeeding Obama as the lone African-American senator, you could feel a wave of anxiety go through Democratic ranks.

Soon, Sen. Dianne Feinstein, the outgoing chairman of the Rules Committee and a potential candidate for California governor next year, publicly called on Reid to relent. The Congressional Black Caucus weighed in on Burris’ behalf. By the time Burris sat down with Reid and Majority Whip Dick Durbin of Illinois, the fight was effectively over and Burris was gracious about accepting their surrender. Obama conceded as well, saying that if the Senate seated Burris, “then I’m going to work with Roland Burris just like I work with all the other senators.”

Obama justifiably figured that Burris was not worth a knockdown fight when he has so many bigger battles ahead of him. But the lesson that other politicians have drawn is that Obama may not always be able to count on his congressional allies and they may not be able to count on him. That is not the way he wanted to begin.

David S. Broder is a columnist for the Washington Post. His e-mail address is davidbroder@washpost.com.

January 10, 2009

By LOUIS UCHITELLE

The nation lost 524,000 jobs in December, reflecting a pervasive fear among employers that if they fail to shed workers quickly their companies may go under in a recession poised to become the worst since the 1930s.

The unemployment rate, meanwhile, jumped to a 16-year-high of 7.2 percent, the Bureau of Labor Statistics reported on Friday. The growing army of the unemployed, at 11.1 million, is nearly 50 percent bigger than at the start of the recession a year ago.

Responding to the report, President-elect Barack Obama said Congress must enact an economic stimulus plan quickly.

The December decline in jobs came on top of similar losses in October and November. Not since 1980 has the work force shrunk so much in just three months. Companies across all industries are grappling with sales that are deteriorating rapidly just as they lose easy access to loans.

“The simplest way for a company to hoard cash is to drain their inventories and fire their workers,” said Robert J. Barbera, chief economist at the Investment Technology Group, a research and trading firm, “and everywhere you look, that is what is happening.”

The total number of jobs lost in the recession now totals 2.59 million, counting upward revisions for October and November, with many more job losses expected in coming months.

Nearly as troubling, hundreds of thousands more people sought full-time work in December but could not get more than part-time jobs.

If those workers are included, the so-called total unemployment rate swelled to 13.5 percent, from 12.6 percent in November and just 8.7 percent at the start of the recession. Total unemployment includes the officially unemployed, the part-timers who seek more hours and the nearly 300,000 who would like a job but tell pollsters from the Bureau of Labor Statistics that they are too discouraged to look.

Employers in nearly every industry cut payrolls. Only health care and education bucked the trend in December, adding just 45,000 jobs combined, the Bureau of Labor Statistics reported. Manufacturers, construction companies and retailers led all last year in eliminating jobs, and they did so again in December.

“What happened to jobs in the fourth quarter tells us unmistakably that this recession is going to be a long one and a deep one,” Mr. Barbera said. “The toughest six months,” he added, “will be the just-completed fourth quarter and the first quarter of this year.”

The consensus view of economists surveyed by Blue Chip Economic Indicators is that the economy will continue to contract until July at the very least, but at a slowing pace in the second quarter. That would make it the longest recession since the 1930s, outlasting the two record-holders, the mid-1970s and early 1980s downturns. Each of these recessions lasted 16 months. The current recession, which started in December 2007, would reach that milestone in April.

At a news conference in Washington, Mr. Obama said that behind the latest job statistics were “real lives, real suffering, real fears,” and Congress must bring Americans relief by quickly enacting a stimulus plan. Asked whether he was worried that some lawmakers thought his proposed stimulus program, estimated at $775 billion, was too small, he responded that others thought it was too big and said he was open to a “whole host of ideas” in consultation with Congress.

“You are assuming that I expected it to be easy,” he told one questioner. “No.”

The latest jobs report suggested that many employers tried to cut back hours before resorting to job cuts or hiring freezes. The average number of hours that Americans worked fell to 33.3 a week in December, down two-tenths of an hour, to the lowest level since records first were kept in 1964. Over the course of the recession, average weekly hours worked are down 4 percent.

“There has been a change in psychology as the financial crisis has devolved into a panic,” said Mark Zandi, chief economist at Moody’s Economy.com. “Businesses have gone from trying to hold onto workers, by reducing their hours, to laying them off in an effort to survive.”

Economists fell over themselves in describing the dire nature of the jobs report, which they said was alarming confirmation that the economy was in the midst of a sharp contraction in which consumer spending and business investment bordered on free fall. Many say that the economy contracted in the fourth quarter at a 5 or 6 percent annual rate and that steep contraction will continue at least through the first quarter, letting up only if Congress approves a sizable stimulus, one that kicks in soon and is at least as big as the $775 billion that the Obama camp has proposed.

“It will add massively to the budget deficit,” said Stuart G. Hoffman, chief economist at the PNC Financial Services Group in Pittsburgh, who counts himself as an advocate of balanced budgets. “But I am not against running deficits in these circumstances, not with so many people losing their jobs.”

Mr. Hoffman expects the unemployment rate, which jumped to 7.2 percent last month from 6.8 percent in November, to rise to 8.5 percent by July and plateau there for the rest of the year.

Others are less sanguine. They see 9 or 10 percent unemployment by early next year, and a jobless recovery that continues for about six months even after the economy ceases to contract.

By comparison, the unemployment rate reached 10.8 percent in the 1981-1982 recession, its highest level since World War II. In those years, unemployment and economic growth rose and fell more or less in tandem. But in the early 1990s that changed. In the 1990-1991 recession and again after the 2001 recession, employers continued to shed jobs for months. In the case of the 2001 recession, employment did not return to its prerecession level for four years.

“Even with the help of a stimulus,” said David A. Levy, chairman of the Jerome Levy Forecasting Center, “the unemployment rate is going to keep rising for the rest of the year, or longer.”

Cal Thomas is a columnist for Tribune Media Services.

GOP Asked to Help Design Bill; $300 Billion in Tax Cuts Sought

By Paul Kane, Lori Montgomery and Shailagh Murray
Washington Post Staff Writers
Tuesday, January 6, 2009; A01

President-elect Barack Obama arrived on Capitol Hill yesterday and immediately set to work reassuring skeptical Republicans about his massive economic stimulus package — part of a campaign that earned him praise for seeking their input but questions from those averse to hundreds of billions of dollars in new spending.

Pitching a plan that is expected to include $300 billion in tax cuts, Obama pledged to consult Republican leaders, who until yesterday had been left out of negotiations between the president-elect’s advisers and congressional Democratic staff.

“The monopoly on good ideas does not belong to a single party. If it’s a good idea, we will consider it,” Obama told House and Senate leaders at an hour-long closed-door meeting, according to one attendee.

Obama, making his pitch two weeks before taking office, won generally favorable reviews from GOP leaders, particularly because of his decision to increase the tax-cut ratio to 40 percent of the overall package.

Senate Minority Leader Mitch McConnell (R-Ky.) and House Minority Leader John A. Boehner (R-Ohio) told reporters they were convinced that Obama was sincere in his invitation to let Republicans help craft the nearly $800 billion package to create jobs and lift the nation out of recession. But they also expressed concerns about the size of the package, as well as particular elements under discussion between Obama and Democratic lawmakers.

“I remain concerned about wasteful spending that might be attached to the tax relief. Simply put, we should not bury future generations under mountains of debt,” Boehner said.

Boehner suggested the legislation would likely be signed into law by mid-February, but the president-elect said yesterday that he would like the House and Senate to present him with a bill by the end of January or beginning of February.

“The economy is very sick,” Obama said. “The situation is getting worse. . . . We have to act and act now to break the momentum of this recession.”

As described by his advisers, Obama is proposing a package of tax cuts to benefit families and businesses. Like the overall spending proposal, the tax cuts would be designed to put cash in people’s pockets over the next two years and kick-start the economy.

Working families would be eligible for a tax credit worth up to $1,000. Individuals would be eligible for a $500 credit.

Businesses would get an extension of expired tax breaks from the 2008 stimulus package signed by President Bush, including a “bonus depreciation” break that allows businesses to write off more of their purchases more quickly and an increase in small-business expensing limits. Businesses could apply current losses to taxes paid back as far as five years ago, reaping an immediate cash windfall. And they would receive a $3,000 tax credit for every job they create or preserve.

Key details of the stimulus proposal remain unresolved. For instance, upper-income individuals would not be eligible for the income tax credit, but the income threshold for phasing out the benefit has not been set. Obama officials said it would likely be about $200,000 a year, the range set during the campaign.

Obama officials said they tried to keep the package ideologically neutral, rejecting an option supported by many progressives to make people who are not working eligible for a “refundable” tax credit. And they passed up conservative provisions such as estate tax relief and capital gains tax cuts that disproportionately benefit wealthier individuals.

After a lunchtime session with his economic advisers, Obama rejected suggestions that the tax cuts were designed to win over GOP votes. “The notion that me wanting to include relief for working families in this plan is somehow a political ploy, when this was a centerpiece of my plan for the last two years doesn’t make too much sense,” he told reporters.

Some prominent Republicans expressed reservations about the tax proposals’ specifics. Jon Kyl (Ariz.), a member of the Senate Republican leadership team, said he hadn’t studied the list of proposed cuts, but that he favored reducing corporate and capital gains taxes, and providing more generous small-business incentives. And, he said, “These changes should be permanent, rather than just temporary.”

Sen. Charles E. Grassley (Iowa), the senior Republican on the tax-writing Senate Finance Committee, said he would prefer a tax package that is “inclusive rather than exclusive” and that offers relief to “as many as taxpayers as possible.” One option, according to a senior Grassley aide, would be to include a $75 billion provision to prevent the alternative minimum tax from applying to millions of additional families.

It is also not clear that tax cuts are the most effective way to win GOP votes. Two key Republican moderates in the Senate — Susan Collins and Olympia J. Snowe, both of Maine — have not focused on tax breaks as the best solution to the economic crisis.

In a letter to Obama last month, Collins outlined her stimulus priorities as transportation construction projects, energy-efficiency investments and a temporary increase in Medicaid assistance to states. In conversations with Obama and his Treasury secretary-designate Timothy F. Geithner, Snowe has urged the inclusion of unemployment assistance, mortgage relief for strapped homeowners and programs to ease the credit crunch facing small businesses.

“With more than 10.3 million people currently out of work, Congress must swiftly enact economic recovery legislation that will create jobs, assist the unemployed and reduce the devastating rate of home foreclosures,” Snowe said.

Obama bounced across the Capitol yesterday to take part in three meetings, beginning with a one-on-one meeting with House Speaker Nancy Pelosi (D-Calif.) in the morning and a sit-down in the early afternoon with Senate Majority Leader Harry M. Reid (D-Nev.). The final meeting was with the bipartisan leadership from both chambers.

Democrats described the atmosphere as markedly different than the confrontational tone of recent battles with the Bush White House, in part because the new administration is run by former senators.

“They understand the Senate, they understand the Capitol. It wasn’t as if someone new was coming to town,” Sen. Richard J. Durbin (D-Ill.), the majority whip and close Obama ally, said afterward.

Some Republicans, while saying they were pleased by Obama’s attempt to open dialogue, questioned whether the spending side of the plan would be transparent enough. Rahm Emanuel, Obama’s chief of staff, pledged to put details of the spending plan online, including the creation of a monitoring system for the progress on some of the projects, according to one attendee.

Some independent analysts joined GOP aides in questioning Obama’s tax credit for job creation, saying it’s unclear how such a provision would be crafted.

“When somebody lays off 10,000 people but hires back 1,000, should they get a tax credit? That doesn’t really seem fair,” said Leonard Burman, a director of the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution. “The problem with these things is defining what qualifies.”

Meanwhile, some Republicans and moderate Democrats are pushing Obama to commit to addressing the nation’s long-term budget problems even as his stimulus package pushes the government deeper into debt. With congressional budget analysts expected to announce later this week that this year’s deficit is likely to soar well over $1 trillion, a commitment to reducing future deficits is critical, said Sen. Kent Conrad (D-N.D.), chairman of the Senate Budget Committee.

“At some point here, you have to pivot and face up to these long-term problems,” said Conrad, who along with Sen. Judd Gregg (R-N.H.) is proposing a commission to re-examine the expensive entitlement programs Social Security, Medicare and Medicaid.

If the United States and Israel hope to ever truly come up with a successful strategy for fighting extreme militarism and threats to their security, they need bigger imaginations.

Pretend just for a minute that you are a mainstream Palestinian person living in Gaza. You, like 66 percent of your fellow Palestinians, support some sort of peace process with Israel. You are fairly moderate and generally prefer peace to violence, but in 2006 you voted for Hamas in the elections. You didn’t necessarily agree with Hamas’s more radical rhetoric, but at the same time you found the status quo unacceptable. You voted for change.

Now in 2008, you are under attack. Israel has launched air strikes that make you afraid to go outside. Then their troops invade. You may not like how things have gone under Hamas’s rule, but at least they are there vowing to fight back against Israeli attacks.

It is baffling that Israel is unable to use its imagination to put itself inside the shoes of Palestinians and understand how Israeli actions are driving Palestinians toward supporting Hamas.

Hamas is a political entity. After winning the elections in 2002, it still faces threats to its power from other political factions. Its periodic rocket attacks could not possibly destroy Israel, but were intended to annoy and provoke; Israel has fallen right into the trap and has taken the bait. Why would Hamas provoke Israel?  Because Hamas knows that if Israel responds with military force, threatens Palestinians, and kills civilians, it will further radicalize Muslim opinion worldwide against the Israelis and strengthen Hamas’s position domestically with the Palestinian people.

The Israelis would do much better for themselves, strategically, to take a different approach. In the past, Hamas has indicated its willingness to negotiate with Israel. The Israeli government should take them up on this offer and make a good faith effort to talk and compromise. If Hamas engages Israel honestly, then perhaps some sort of agreement will materialize. If not, it will be clear to moderate Muslims and the Palestinian people that Hamas is standing in the way of peace, and not the Israelis. Ultimately, Hamas must answer to the Palestinian people, and obstructing peaceful negotiation when it is the will of the people is not a good political strategy.

By choosing to attack instead of talk, Israel is losing the battle for hearts and minds across the world. The anti-Israeli sentiment that follows breeds tolerance for extremism and an environment that anti-Semitic militants ultimately thrive on. Losing the masses is a mistake the United States made in Iraq, a mistake it made in Afghanistan and a mistake Israel is making with Muslims and mainstream Palestinians.

Clearly neither Hamas nor Israel has much moral high ground to stand on right now. Hamas provoked Israel with rocket attacks, and is operating in densely populated areas to intentionally drive up the number of civilians killed by Israeli bombs. Despite the fact that these latest Hamas attacks didn’t result in any deaths, Israeli retaliations resulted in the death of more than 400 Palestinians, and 60 civilians. I can understand both why Israel did what it did and the criticisms of its actions.

The question we should be asking ourselves is what can America do to bring peace and stability? Vast majorities of the populations in every major Muslim country have a negative view of the United States, and a lot of that ill will is a result of our policy, which has basically been to sit on the sidelines and condemn Hamas at every opportunity.

Israel is a strong ally, and America should not abandon her. At the same time, we need a change. We need a policy that takes the high ground and Israel needs one that won’t draw the fire of the Muslim world, and that’s in its strategic interest. America should press Israel to seek peace, not war. The only chance Israel has to undercut extremism is through reaching out with their voices, not their bombers.

Reach columnist Chris Jordan at opinion@dailyuw.com.  Chris is a MSHS graduate and former AP GO PO Student.

BY BARRY RUBIN

Monday, January 5th 2009, 4:00 AM

The war in Gaza is the first chapter of a new era in the Middle East. The Arab-Israeli conflict is far from the region’s dominant dispute. The Arab-Islamist conflict now overwhelms it - by a large margin.

Increasingly, Arab regimes know Hamas isn’t their friend and, though they won’t say so publicly, don’t see Israel as an enemy. No wonder: Israel is politically stable and economically prosperous. It doesn’t threaten to take over their countries, overthrow their regimes and stand them in front of a firing squad.

Radical Islamism, Iran-style, does.

That’s right. Arab nations’ prime 21st century enemy is Iran and its allies: Syria, Hezbollah, Hamas and Iraqi terrorists. After destroying their own countries, they want to do the same to everyone else.

Up on the Lebanese border, where I just visited, things are quiet. Hezbollah talks big about its 2006 “victory” but knows how hard Israel hit it then. It’s not looking for trouble with the Jewish state now.

At the same time, Egypt condemns Hamas and urges Israel to smash the radical Islamist group. Lebanese friends tell me they fear that unless Israel and the West stop the Islamists, their country will be taken over in this new year.

The editor of the important Arabic newspaper Al-Sharq al-Awsat, himself a Saudi, warns that Iran and Hamas - effectively at war with Egypt and Saudi Arabia - are the real threat to Arab security.

And the meeting of Arab states last week, instead of producing a condemnation of Israel or America, did nothing.

What was the 2006 Israel-Hezbollah war’s big lesson? That unless Israel wins a clear victory, Islamists will be more aggressive. It’s the same thing the U.S. surge in Iraq demonstrates: pulling punches on terrorists doesn’t make them love you or be peaceable.

Of course, the Israel-Palestinian conflict is far from over: It will probably continue for decades. But that’s precisely the point. It’s an Israel-Palestinian battle, smaller and less strategically significant than this other half-century-long conflict, which involves the whole region.

This is also a conflict among Palestinians. The Palestinian Authority, which rules the West Bank, is still full of radicals but has worked recently to stop terrorist attacks against Israel and to create a stable society. The PA can’t and won’t make full peace with Israel, but the two sides do cooperate in reducing violence.

In contrast, Hamas wants permanent war on Israel, constant terrorism, and openly preaches genocide.

This is what the Obama administration must understand. The Arab-Israeli conflict is relatively unimportant today in regional terms. It is overwhelmed by a dangerous mix of other nations and issues: Iran, Iraq, Afghanistan, Pakistan, Lebanon (on the verge of an Iran-Syria takeover), Islamism, terrorism and oil.

Barack Obama must understand that Iran and radical Islamists are out to destroy U.S. interests in the Middle East, expand their own influence and escalate anti-Americanism to murderous proportions around the globe.

Moderate Arabs - and the nations in which they have the most influence - live in constant fear of that happening. America can allay those fears - if it follows a policy mixing intelligence and toughness.

Rather than obsessing over the Arab-Israeli conflict, as many want Obama to do, job one for the new administration in the Mideast should be uniting America’s Arab friends alongside Israel against their common enemies: the fanatical Islamists.

A broad moderate Arab coalition, strengthened to resist the likes of Iran, Hezbollah and Hamas, will not only put the region on far more solid footing. It will help the Israeli-Palestinian mess take care of itself.

Barry Rubin is director of the Global Research in International Affairs Center (GLORIA) and editor of the Middle East Review of International Affairs (MERIA) Journal. He is author of “The Long War for Freedom: The Arab Struggle for Democracy in the Middle East.”

By Michael D. Shear and Carol D. Leonnig
Washington Post Staff Writers
Monday, January 5, 2009

New Mexico Gov. Bill Richardson, chosen by President-elect Barack Obama to be commerce secretary, withdrew from consideration yesterday, citing an ongoing federal “pay-to-play” investigation involving one of his political donors as a significant obstacle to his confirmation.

Richardson, 61, who competed unsuccessfully for the Democratic presidential nomination last year, becomes the first political casualty in Obama’s Cabinet, and his withdrawal marked the first visible crack in what had been one of the smoothest presidential transitions in modern history.

The former energy secretary and U.N. ambassador under President Bill Clinton was positioned to become the highest-profile Hispanic in Obama’s administration. But Richardson made it clear yesterday that he thought confirmation was far from a sure thing, even with Democrats firmly in control of the Senate.

“Given the gravity of the economic situation the nation is facing, I could not in good conscience ask the President-elect and his administration to delay for one day the important work that needs to be done,” Richardson said in a statement.

The New Mexico investigation, which began last summer, focuses on whether Richardson’s office urged a state agency to hire a California firm as a result of generous contributions from the company and its president to political action committees established by the governor.

Richardson insisted that he and his staff “have acted properly in all matters” and predicted that the investigation would exonerate him. But he said the probe could take weeks or months, potentially holding up his Senate approval. Instead, Richardson said he will remain “in the job I love as governor of New Mexico.”

He called Obama on Friday to advise him of his plans, and the president-elect accepted the decision “with deep regret,” according to a statement issued yesterday. Aides said no one in Obama’s transition pressured Richardson to drop out.

No clear replacement for Richardson at the Commerce Department emerged yesterday, but sources close to the transition said Obama would move quickly to find one.

A grand jury in Albuquerque is looking into whether CDR Financial Products received a contract with the New Mexico Finance Authority because of pressure from Richardson or other state employees. CDR made $1.48 million advising the authority on interest-rate swaps and refinancing of funds related to $1.6 billion in transportation bonds, state officials confirmed.

The Beverly Hills-based firm and its president, David Rubin, together gave $100,000 to Sí Se Puede and Moving America Forward, both PACs started by Richardson, shortly before winning the lucrative state contract, records show.

The federal probe heated up considerably last month, just around the time Obama announced Richardson as his choice for commerce secretary, according to sources familiar with the investigation. New subpoenas were issued, and testimony was scheduled from officials at J.P. Morgan Chase who worked for the state with CDR and from the director of Richardson’s political action committees.

CDR’s selection drew FBI interest because the firm did not make an initial list of the most qualified bidders. The bidding was reopened for review, and a state committee headed by one of Richardson’s former top aides later helped select CDR.

A legal source familiar with the investigation said yesterday that FBI agents, working on the Senate’s behalf and conducting a background check of Richardson for the Commerce job, conveyed to Obama’s transition team the seriousness and significance of the Albuquerque grand jury probe.

The agents are said to have communicated that the governor’s top aides — and even Richardson’s actions — were under scrutiny. At least two sources familiar with the investigation said some evidence raises concern about the propriety of the Richardson administration’s interactions with a donor.

Obama aides declined to comment on any conversations the transition team may have had with the FBI about the investigation.

The inquiry springs from a long-running nationwide investigation by the Justice Department into “pay-to-play” practices in local government bond markets. Federal investigators are questioning whether financial firms have lavished politicians with money and gifts in exchange for high fees on work advising municipal and local governments on investments.

In mid-December, Richardson spokesman Gilbert Gallegos said the governor was “aware of questions surrounding some financial transactions at the New Mexico Finance Authority” and expected state officials to cooperate fully.

CDR’s attorney, Richard Beckler, declined several weeks ago to elaborate on the investigation, but he told a Washington Post reporter Dec. 15 that the company “has always tried to abide by these byzantine campaign finance regulations and is cooperating fully with this investigation.”

The suddenness of Richardson’s withdrawal renewed questions about the Obama team’s vetting procedures. The New Mexico investigation had been publicized since the summer, yet aides to the president-elect said yesterday that they were not aware of the matter when Richardson was nominated. Richardson advisers insisted that the governor had relayed information about the investigation to transition officials before his name was announced.

“I think our vetters have done a good job,” incoming Obama press secretary Robert Gibbs said last night, crediting the “impressive . . . totality of our Cabinet picks.”

A senior transition aide said yesterday that Richardson had assured the team that he would emerge unscathed by the investigation and that there was no reason to think otherwise. “But it became clear that confirmation hearings would have to be delayed until the investigation was complete and that would take six weeks or, perhaps, longer. Governor Richardson concluded that this was too long, and he decided to withdraw,” the aide said.

Gallegos, the Richardson spokesman, said yesterday that the governor considered asking Obama to delay sending his name to Capitol Hill until the case was concluded.

“He was hopeful that his name would be cleared and it would be wrapped up before his confirmation,” Gallegos said. Over the weekend, when it became clear that would not happen, Richardson decided to withdraw, Gallegos said.

Obama praised Richardson yesterday and said that he looked forward to having the governor serve his administration in some capacity.

Staff writer Chris Cillizza contributed to this report.

January 5, 2009
Op-Ed Columnist

By PAUL KRUGMAN

“If we don’t act swiftly and boldly,” declared President-elect Barack Obama in his latest weekly address, “we could see a much deeper economic downturn that could lead to double-digit unemployment.” If you ask me, he was understating the case.

The fact is that recent economic numbers have been terrifying, not just in the United States but around the world. Manufacturing, in particular, is plunging everywhere. Banks aren’t lending; businesses and consumers aren’t spending. Let’s not mince words: This looks an awful lot like the beginning of a second Great Depression.

So will we “act swiftly and boldly” enough to stop that from happening? We’ll soon find out.

We weren’t supposed to find ourselves in this situation. For many years most economists believed that preventing another Great Depression would be easy. In 2003, Robert Lucas of the University of Chicago, in his presidential address to the American Economic Association, declared that the “central problem of depression-prevention has been solved, for all practical purposes, and has in fact been solved for many decades.”

Milton Friedman, in particular, persuaded many economists that the Federal Reserve could have stopped the Depression in its tracks simply by providing banks with more liquidity, which would have prevented a sharp fall in the money supply. Ben Bernanke, the Federal Reserve chairman, famously apologized to Friedman on his institution’s behalf: “You’re right. We did it. We’re very sorry. But thanks to you, we won’t do it again.”

It turns out, however, that preventing depressions isn’t that easy after all. Under Mr. Bernanke’s leadership, the Fed has been supplying liquidity like an engine crew trying to put out a five-alarm fire, and the money supply has been rising rapidly. Yet credit remains scarce, and the economy is still in free fall.

Friedman’s claim that monetary policy could have prevented the Great Depression was an attempt to refute the analysis of John Maynard Keynes, who argued that monetary policy is ineffective under depression conditions and that fiscal policy — large-scale deficit spending by the government — is needed to fight mass unemployment. The failure of monetary policy in the current crisis shows that Keynes had it right the first time. And Keynesian thinking lies behind Mr. Obama’s plans to rescue the economy.

But these plans may turn out to be a hard sell.

News reports say that Democrats hope to pass an economic plan with broad bipartisan support. Good luck with that.

In reality, the political posturing has already started, with Republican leaders setting up roadblocks to stimulus legislation while posing as the champions of careful Congressional deliberation — which is pretty rich considering their party’s behavior over the past eight years.

More broadly, after decades of declaring that government is the problem, not the solution, not to mention reviling both Keynesian economics and the New Deal, most Republicans aren’t going to accept the need for a big-spending, F.D.R.-type solution to the economic crisis.

The biggest problem facing the Obama plan, however, is likely to be the demand of many politicians for proof that the benefits of the proposed public spending justify its costs — a burden of proof never imposed on proposals for tax cuts.

This is a problem with which Keynes was familiar: giving money away, he pointed out, tends to be met with fewer objections than plans for public investment “which, because they are not wholly wasteful, tend to be judged on strict ‘business’ principles.” What gets lost in such discussions is the key argument for economic stimulus — namely, that under current conditions, a surge in public spending would employ Americans who would otherwise be unemployed and money that would otherwise be sitting idle, and put both to work producing something useful.

All of this leaves me concerned about the prospects for the Obama plan. I’m sure that Congress will pass a stimulus plan, but I worry that the plan may be delayed and/or downsized. And Mr. Obama is right: We really do need swift, bold action.

Here’s my nightmare scenario: It takes Congress months to pass a stimulus plan, and the legislation that actually emerges is too cautious. As a result, the economy plunges for most of 2009, and when the plan finally starts to kick in, it’s only enough to slow the descent, not stop it. Meanwhile, deflation is setting in, while businesses and consumers start to base their spending plans on the expectation of a permanently depressed economy — well, you can see where this is going.

So this is our moment of truth. Will we in fact do what’s necessary to prevent Great Depression II?

By: Carrie Budoff Brown and Mike Allen
December 30, 2008 03:38 PM EST

Setting up a clash with Senate Democrats, Illinois Gov. Rod Blagojevich announced Tuesday that he would appoint former state attorney general and comptroller Roland Burris to fill out President-elect Obama’s term in the U.S. Senate.

Saying Illinois should not be “deprived” of the representation of two senators, Blagojevich introduced Burris as “someone with unquestioned integrity.” The governor defended his decision to make the appointment as part of his gubernatorial responsibility to fill Senate vacancies.

“I would like to ask everyone to do one last thing: Don’t allow the allegations against me to taint this good and honest man,” Blagojevich said at a 3 p.m. press conference.

The move was met with a rebuke from Senate Majority Leader Harry Reid (D-Nev.), who said the Democratic caucus would refuse the appointment from a governor who stands accused of selling the position to the highest bidder.

“Under these circumstances, anyone appointed by Gov. Blagojevich cannot be an effective representative of the people of Illinois and, as we have said, will not be seated by the Democratic Caucus,” Reid said in a statement.

In addition, Jesse White, the Illinois secretary of state, said he will not certify Burris as the replacement for Obama’s seat.

For his part, Burris said it’s inconceivable that the state of Illinois should start the new Congress “shorthanded,” with just one senator.

Burris also said he has “no relationship” to charges that Blagojevich tried to sell Obama’s Senate seat for personal gain and said of the governor, “In this legal process, you’re innocent until you’re proven guilty.”

Blagojevich’s lawyer had said earlier that the governor did not plan to defy the Senate leaders and impose an Obama successor on them.

Reid (D-Nev.) has said that Illinois Lt. Gov. Pat Quinn should make the appointment, and the Senate Democratic caucus signed a letter supporting that option.

Reid said in a letter to the governor: “Please understand that should you decide to ignore the request of the Senate Democratic Caucus and make an appointment we would be forced to exercise our Constitutional authority under Article I, Section 5, to determine whether such a person should be seated.”

Blagojevich’s lawyer, Ed Genson, had told a news conference Dec. 17 that the governor did not plan to try to make the appointment. “Harry Reid said that they’re not going to accept anybody, so why would he do that?” Genson said.

Burris, 71, told reporters earlier this month that he only wanted to serve the remaining two years of the Senate term and would not run for reelection.

Burris was the first African American to be elected to statewide office in Illinois, serving as comptroller from 1983 to 1991 and as attorney general from 1991 to 1995.

He also ran against Blagojevich for the Democratic nomination for governor in 2002 – winning the support of much of Illinois African-American political establishment, including then-state Sen. Barack Obama.

Another complication in the selection is that Burris is a registered lobbyist in Illinois and Washington, D.C. His Chicago-based firm, Burris & Lebed, is registered in Springfield to represent clients ranging from Comcast to the Illinois Funeral Directors Association. In 2007, the firm was also registered to represent the Illinois Association of Mortgage Bankers. The firm is registered in both Springfield and Washington to represent MicroSun Technologies, an Illinois-based maker of battery and power supplies.

Burris’ lobbying partner is Fred Lebed, a veteran Democratic political operative who once served as executive director of the Cook County party and has also held a number of state government posts.

Blagojevich has been under pressure to resign from office, or at least relinquish his gubernatorial authority to fill Senate vacancies. He has remained in office, however, as he fights a federal corruption investigation and a legislative effort to impeach him.

The two-term governor has denied any wrongdoing.

It’s unclear whether Reid has the power to block Burris’ appointment. Senate leaders discussed the impending announcement on a conference call Tuesday afternoon.

John Fortier, a research fellow at the American Enterprise Institute, wrote in a Politico Ideas piece this month that the Senate doesn’t have the power to reject the appointment.

“The Senate would have little recourse but to seat Blagojevich, as he meets the minimum constitutional qualifications for office,” Fortier wrote of the possibility that the governor might appoint himself. “But after seating Blagojevich, the Senate could then expel him by a two-thirds vote. The seat would be vacant again, and the new governor could make an appointment. Or by then, the Legislature might have changed the law to do away with appointments, in which case the seat would sit vacant until a special election was held.

The office of the Senate historian referred questions Tuesday to the Senate counsel, saying it is a legal matter.

Adjusted for inflation, it’s at lowest since ’57

by Joel Stein

Joel Stein is a columnist for The Los Angeles Times. His e-mail address is jstein@latimescolumnists.com.

By Saeed Shah and Jonathan S. Landay / McClatchy

Take it from a Brit: Losing the No. 1 world superpower spot won’t be that bad. Really.

By Chris Ayres

December 27, 2008

There has been much talk in the media about America’s threatened superpower status — a result of its near-fatal exposure to the Kryptonite of subprime mortgages, among other factors — and how the country will inevitably find itself going the way of that other once-undefeated political juggernaut, the dear old British Empire.

To which I say: Lucky America!

I mean, yeah, it’s going to sting a bit. Losing any big, sexy-sounding job title will inevitably deliver a blow to your self-esteem. Yet it can also be liberating.

Do Tehranis and Muscovites blame Britain for the culture of mindless self-gratification that brought down the global economy? Of course not. They blame America — even though Britain is arguably the more guilty party, what with its foreign-debt-to-GDP ratio standing at an unconscionable (and, really, quite embarrassing) 490%, as opposed to the United States’ puritanical 89% (according to the 2007 “purchasing power parity” GDP and external debt figures supplied by the CIA World Factbook).

The fact is that when you’re No. 1, you always get blamed for everything. When you’re No. 3, or No. 5 — or No. 135 — you can put your hands in your pockets and whistle tunelessly with a “Who, me?” look on your face, and no one ever asks any questions.

Take Slovakia. Five years ago, Slovakia invaded Iraq. Admittedly, it did this with the help of a few other countries. But still, does Slovakia ever get the blame for all the trouble that has gone down over there since then?

Nope.

Imagine, for a moment, the relief of being simply too unimportant to be held responsible for any event of consequence. Imagine Barack Obama being roused by the proverbial “red phone” at 11 a.m. — the leaders of low-ranking countries can presumably nap until late morning — to be informed of a terrible rumpus in deepest Nmbubu-Oobu, and his only responsibility is to write a stern news release calling on Belgium to act. And when it all goes horribly wrong — as it inevitably will — all he has to do is tut disapprovingly and mutter something about those arrogant Flems in Bruges.

Being British, I speak from some experience when it comes to lost superpowerdom. I was born in northern England in the mid-1970s — a time when my grandparents still believed that Britain was the mightiest nation on Earth, even though the prime minister, Harold Wilson, was being warned that the country was facing “wholesale domestic liquidation” unless it could secure an emergency, Third World-style bailout from the International Monetary Fund.

In Britain in those days — as in America now — people bought consumer products based on patriotism. The misery! I later fell victim to this nonsense myself: My first car was an antique 1974 MGB, the electronics supplied by the pride of postwar British manufacturing, Lucas Industries. When I bought the MGB, I sincerely believed that British sports cars were the finest in the world. Then the wiring loom under the steering wheel short-circuited when I was halfway down Caledonia Road in North London and I had to jump out with my trousers literally on fire.

My next car was Japanese.

Today, of course, there are pretty much no truly British cars. And who cares? We live in an era of globalization. The Indians might own the company that makes Jaguars, but I probably have money in a pension fund somewhere that owns stock in that very same Indian company. So, in a small way, the British are still in the car business — with the added benefit that a modern Jag probably won’t cause a trouser fire.

And even if you own a “foreign” car these days, chances are that at least a few bits and pieces of it have been sourced from your homeland. That’s the way it should be: Countries that are good at one thing should concentrate on it, and countries that are bad at that same thing should stop doing it.  [See Law of Comparative Advantage - Kautzman]

Besides, abandoning consumer patriotism is as liberating as no longer being blamed for everything. It’s especially liberating when shopping for an automobile. Farewell, beige Ford Taurus! Hello, gunmetal-gray BMW M3!

Not all domestic industries suffer when a nation goes into an irreversible decline, of course. Others suddenly find themselves booming. The beleaguered American newspaper industry, for example, might very well be able to profit immensely by simply dispatching its most snide and ironically detached correspondents to the new capitals of world power, from which they will be able to report with maximum condescension about the hilarious earnestness of the locals. Mark my words: Demoralized Americans won’t be able to get enough of these reports, and thus will buy multiple newspapers every morning while traveling to work on buses and trains, having abandoned their cars when the U.S. government stopped qualifying for its bulk oil discount from the Saudis.

Not that working 8-to-7 six days a week will seem so important when you’re no longer ruling the world. If Britain’s experience is anything to go by, Americans will soon find more satisfaction by trying to break pointless world records — crossing Greenland on a pogo stick, using only one arm, while dressed in native Bolivian costume, for example — or writing absurdist comedy, or recovering from apocalyptic, three-gin-and-tonic lunchtime hangovers.

Oh yes, you’re in for a treat.

Chris Ayres is Los Angeles correspondent for the Times of London and the author of “Death by Leisure: A Cautionary Tale” (Grove Press, February 2009).

DECEMBER 27, 2008, 12:14 P.M. ET

NASHVILLE — Although the number of uninsured and the cost of coverage have ballooned under his watch, President Bush leaves office with a health care legacy in bricks and mortar: he has doubled federal financing for community health centers, enabling the creation or expansion of 1,297 clinics in medically underserved areas.

For those in poor urban neighborhoods and isolated rural areas, including Indian reservations, the clinics are often the only dependable providers of basic services like prenatal care, childhood immunizations, asthma treatments, cancer screenings and tests for sexually transmitted diseases.

As a crucial component of the health safety net, they are lauded as a cost-effective alternative to hospital emergency rooms, where the uninsured and underinsured often seek care.

Despite the clinics’ unprecedented growth, wide swaths of the country remain without access to affordable primary care. The recession has only magnified the need as hundreds of thousands of Americans have lost their employer-sponsored health insurance along with their jobs.

In response, Democrats on Capitol Hill are proposing even more significant increases, making the centers a likely feature of any health care deal struck by Congress and the Obama administration.

In Nashville, United Neighborhood Health Services, a 32-year-old community health center, has seen its federal financing rise to $4.2 million, from $1.8 million in 2001. That has allowed the organization to add eight clinics to its base of six, and to increase its pool of patients to nearly 25,000 from 10,000.

Still, says Mary Bufwack, the center’s chief executive, the clinics satisfy only a third of the demand in Nashville’s pockets of urban poverty and immigrant need.

One of the group’s recent grants helped open the Southside Family Clinic, which moved last year from a pair of public housing apartments to a gleaming new building on a once derelict corner.

As she completed a breathing treatment one recent afternoon, Willie Mai Ridley, a 68-year-old beautician, said she would have sought care for her bronchitis in a hospital emergency room were it not for the new clinic. Instead, she took a short drive, waited 15 minutes without an appointment and left without paying a dime; the clinic would bill her later for her Medicare co-payment of $18.88.

Ms. Ridley said she appreciated both the dignity and the affordability of her care. “This place is really very, very important to me,” she said, “because you can go and feel like you’re being treated like a person and get the same medical care you would get somewhere else and have to pay $200 to $300.”

As governor of Texas, Mr. Bush came to admire the missionary zeal and cost-efficiency of the not-for-profit community health centers, which qualify for federal operating grants by being located in designated underserved areas and treating patients regardless of their ability to pay. He pledged support for the program while campaigning for president in 2000 on a platform of “compassionate conservatism.”

In Mr. Bush’s first year in office, he proposed to open or expand 1,200 clinics over five years (mission accomplished) and to double the number of patients served (the increase has ended up closer to 60 percent). With the health centers now serving more than 16 million patients at 7,354 sites, the expansion has been the largest since the program’s origins in President Lyndon B. Johnson’s war on poverty, federal officials said.

“They’re an integral part of a health care system because they provide care for the low-income, for the newly arrived, and they take the pressure off of our hospital emergency rooms,” Mr. Bush said last year while touring a clinic in Omaha.

With federal encouragement, the centers have made a major push this decade to expand dental and mental health services, open on-site pharmacies, extend hours to nights and weekends and accommodate recent immigrants — legal and otherwise — by employing bilingual staff. More than a third of patients are now Hispanic, according to the National Association of Community Health Centers.

The centers now serve one of every three people who live in poverty and one of every eight without insurance. But a study released in August by the Government Accountability Office found that 43 percent of the country’s medically underserved areas lack a health center site. The National Association of Community Health Centers and the American Academy of Family Physicians estimated last year that 56 million people were “medically disenfranchised” because they lived in areas with inadequate primary care.

President-elect Barack Obama has said little about how the centers may fit into his plans to remake American health care. But he was a sponsor of a Senate bill in August that would quadruple federal spending on the program — to $8 billion from $2.1 billion — and increase incentives for medical students to choose primary care. His wife, Michelle, worked closely with health centers in Chicago as vice president for community and external relations at the University of Chicago Medical Center.

And Mr. Obama’s choice to become secretary of health and human services, former Senator Tom Daschle of South Dakota, argues in his recent book on health care that financing should be increased, describing the health centers as “a godsend.”

The federal program, which was first championed in Congress by Senator Edward M. Kennedy, Democrat of Massachusetts, has earned considerable bipartisan support. Leading advocates, like Senator Bernie Sanders, independent of Vermont, and Representative James E. Clyburn, Democrat of South Carolina, the House majority whip, argue that any success Mr. Obama has in reducing the number of uninsured will be meaningless if the newly insured cannot find medical homes. In Massachusetts, health centers have seen increased demand since the state began mandating health coverage two years ago.

At $8 billion, the Senate measure may be considered a relative bargain compared with the more than $100 billion needed for Mr. Obama’s proposal to subsidize coverage for the uninsured. If his plan runs into fiscal obstacles, a vast expansion of community health centers may again serve as a stopgap while universal coverage waits for flusher times.

Recent job losses, meanwhile, are stoking demand for the clinics’ services, often from first-time users. The United Neighborhood Health Services clinics in Nashville have seen a 35 percent increase in patients this year, with much of the growth from the newly jobless.

“I’m seeing a lot of professionals that no longer have their insurance or they’re laid off from their jobs,” said Dr. Marshelya D. Wilson, a physician at the center’s Cayce clinic. “So they come here and get their health care.”

Studies have generally shown that the health centers — which must be governed by patient-dominated boards — are effective at reducing racial and ethnic disparities in medical treatment and save substantial sums by keeping patients out of hospitals. Their trade association estimates that they save the health care system $17.6 billion a year, and that an equivalent amount could be saved if avoidable emergency room visits were diverted to clinics. Some centers, including here in Nashville, have brokered agreements with hospitals to do exactly that.

Many centers are finding that federal support is not keeping pace with the growing cost of treating the uninsured. Government grants now account for 19 percent of community health center revenues, compared with 22 percent in 2001, according to the Health Resources and Services Administration, which oversees the program. The largest revenue sources are public insurance plans like Medicaid, Medicare and the State Children’s Health Insurance Program, making the centers vulnerable to government belt-tightening.

The centers are known for their efficiency. Though United Neighborhood Health Services has more than doubled in size this decade, Ms. Bufwack, its chief executive, manages to run five neighborhood clinics, five school clinics, a homeless clinic, two mobile clinics and a rural clinic, with 24,391 patients, on a budget of $8.1 million. Starting pay for her doctors is $120,000. Patients are charged on an income-based sliding scale, and the uninsured are expected to pay at least $20 for an office visit. One clinic is housed in a double-wide trailer.

Because of a nationwide shortage of primary care physicians, the clinics rely on federal programs like the National Health Service Corps that entice medical students with grants and loan write-offs in exchange for agreements to practice as generalists in underserved areas. Of the 16 doctors working for United Neighborhood, seven are current or former participants.

Dr. LaTonya D. Knott, 37, who treated Ms. Ridley for her bronchitis, is among them. Born to a 15-year-old mother in south Nashville, she herself had been a regular childhood patient at one of the center’s clinics. After graduating as her high school’s valedictorian, she went to college on scholarships and then to medical school on government grants, with an obligation to serve for two years.

She said she now felt a responsibility to be a role model. “I do a whole lot of social work,” she said, noting that it was not uncommon for children to drop by the clinic for help with homework, or for a peanut butter sandwich. “It’s not just that we provide the medical care. I’m trying to provide you with a future.”

Despite such commitment, national staffing shortages have reinforced concerns about the quality of care at health centers, notably the management of chronic diseases. This year, the government started collecting data at the centers on performance measures like cervical cancer screening and diabetes control.

“The question is not just, ‘Are you going to have more community health centers?’ ” said Dr. H. Jack Geiger, founder of the health centers movement and a professor emeritus at the City University of New York. “It’s, ‘Are you going to have adequate services?’ ”

A deeper frustration for health centers concerns their difficulty in securing follow-up appointments with specialists for patients who are uninsured or have Medicaid. All too often, said Ms. Bufwack, medical care ends at the clinic door, reinforcing the need to expand both primary care and health insurance coverage.

“That’s when our doctors feel they’re practicing third world medicine,” she said. “You will die if you have cancer or a heart condition or bad asthma or horrible diabetes. If you need a specialist and specialty tests and specialty meds and specialty surgery, those things are totally out of your reach.”

Current wisdom has it that if there had been a few less hanging chads in Florida in November 2000, the world would be a different place.

Al Gore would have won the presidency, the Iraq war wouldn’t have happened, and several hundred thousand people who perished in that war would be alive today. That conclusion is based on the generally unchallenged belief that Iraq is George W. Bush’s war: that he and a cabal of like-minded right-wingers conceived and executed the invasion for their own ideological motives. Or, as Frank Harvey, a research professor of international relations at Dalhousie University, puts it: “A few powerful ideologues exploited public fears (and international goodwill) in the aftermath of 9/11 to amplify Iraq’s WMD threat as a primary justification for an unnecessary, preventive invasion.”

That view, notes Harvey, “has emerged as the dominant narrative for explaining the U.S. attack. It represents the prevailing consensus running through dozens of the most popular books on the Bush administration, and hundreds of frequently cited (and widely circulated) scholarly articles, media reports and blog entries on the invasion. In fact, casual observers engaged in a cursory review of the literature will find the same thesis repeated (and usually defended) by prominent scholars, journalists and Washington ‘insiders’ on the left and right of the political spectrum.”

Harvey believes the conclusion is dead wrong. In a new paper for the Canadian Defense and Foreign Affairs Institute, he deconstructs the thesis and finds it “overlooks almost all of the relevant historical facts.” More than that, he asks a simple question: Had he been elected, would Al Gore have taken the same path as George Bush? He concludes, overwhelmingly, that he would have. (more…)

HONOLULU — In the days after Barack Obama’s election as president, Rahm Emanuel, a top adviser, suggested to Gov. Rod R. Blagojevich of Illinois that Mr. Obama’s Senate seat should be filled by Valerie Jarrett, a confidante of Mr. Obama.

In that same week, as word of her potential interest in the Senate seat spread throughout the Chicago political world, Ms. Jarrett spoke with a labor union official in Illinois who said he had spoken to the governor about the possibility of appointing her to the seat. During that conversation, the union leader mentioned that Mr. Blagojevich had his eye on a possible cabinet position in the Obama administration.

The contact was among the findings of an internal report released Tuesday, compiled by lawyers for the president-elect. The report concluded that Mr. Emanuel had as many as six conversations with the governor’s office about the Senate vacancy, but that Mr. Obama had none, and that neither Mr. Emanuel, Ms. Jarrett, nor any other Obama associates had any talks about a deal in which Mr. Blagojevich would benefit from appointing someone to the Senate seat.

Mr. Blagojevich was charged by federal prosecutors in Chicago this month on a variety of corruption counts, including an alleged effort to trade the appointment to the Senate seat for a job or money. The report also disclosed that Mr. Obama, Mr. Emanuel and Ms. Jarrett were questioned by federal prosecutors last week in the corruption inquiry of the governor. Mr. Obama’s two-hour interview took place in his Chicago office, aides said, and he was not under oath or considered more than a witness in the case.

Mr. Obama did not speak about the matter on Tuesday. He continued his vacation in Hawaii, where he attended a memorial service for his grandmother, who died just before the election.

Ms. Jarrett, a longtime Chicago friend of the Obama family who will serve as a senior adviser in the White House, had no communication with Mr. Blagojevich or his aides, the report said. But it said that three days after the election, she spoke with Tom Balanoff, president of the Illinois chapter of the Service Employees International Union, about the Senate seat and the governor’s ambitions to serve in the Obama administration as secretary of health and human services.

This conversation, outlined for the first time, could be of interest in the criminal case against Mr. Blagojevich, who was recorded on the same day as the Jarrett-Balanoff meeting in wiretapped phone calls expressing an interest in a job with an arm of the union in exchange for a possible Senate appointment. According to an affidavit, Mr. Blagojevich was also captured on tape that day telling an unnamed adviser that he was willing to “trade” the appointment for the cabinet post.

“Ms. Jarrett did not understand the conversation to suggest that the governor wanted the cabinet seat as a quid pro quo for selecting any specific candidate to be the president-elect’s replacement,” Gregory B. Craig, who has been designated by Mr. Obama as his White House counsel, wrote in the report. “At no time did Balanoff say anything to her about offering Blagojevich a union position.”

The Obama transition team delayed the report’s release at the request of Patrick J. Fitzgerald, the United States attorney for the Northern District of Illinois, who wanted to interview prospective witnesses before it was made public. The delay prolonged questions on whether any Obama aides acted improperly in dealing with the governor’s office.

In the conversations with Mr. Blagojevich immediately after the election, Mr. Emanuel recommended Ms. Jarrett for the Senate seat, the report said, a position that later turned out to be contrary to Mr. Obama’s wishes.

“In those early conversations with the governor, Mr. Emanuel recommended Valerie Jarrett because he knew she was interested in the seat,” the report said. “He did so before learning, in further conversations with the president-elect, that the president-elect had ruled out communicating a preference for any one candidate.”

Mr. Emanuel was not available to answer a reporter’s questions on Tuesday, aides said, because he had left for a planned holiday trip to Africa with his family.

The report suggested that Mr. Obama had been more involved in thinking about his Senate successor than his public statements about the topic had indicated.

The report said that after Ms. Jarrett took herself out of the running for the Senate seat, citing Mr. Obama’s preference that she work for him in the White House, Mr. Obama authorized Mr. Emanuel to pass on the names of four people he considered highly qualified to take over his seat: Daniel W. Hynes, the state comptroller; Tammy Duckworth, the state veterans affairs director; and Representatives Jan Schakowsky and Jesse L. Jackson Jr., Chicago Democrats.

Mr. Obama later offered two other names, it said: Attorney General Lisa Madigan of Illinois and the Chicago Urban League president, Cheryle R. Jackson.

Those names were passed along by Mr. Emanuel in four calls to John Harris, the governor’s chief of staff, from early November through Dec. 8, one day before Mr. Blagojevich and Mr. Harris were arrested.

Mr. Emanuel, an Illinois congressman, was one of the few members of Mr. Obama’s inner circle who had a working relationship and talked occasionally with Mr. Blagojevich. But his contact with the governor was “totally appropriate,” Mr. Craig told reporters on Tuesday afternoon.

The only other name mentioned in the report was Dr. Eric Whitaker, a close friend of Mr. Obama, who was approached by a Blagojevich aide immediately after the election. The aide, the report said, “wanted to know who, if anyone, had the authority to speak for the president-elect.”

“The president-elect told Dr. Whitaker that no one was authorized to speak for him on the matter,” the report said. “The president-elect said that he had no interest in dictating the result of the selection process, and he would not do so, either directly or indirectly.”

December 23, 2008

By Eugene Robinson

WASHINGTON — Understanding isn’t the same as forgiving. The history-be-my-judge interviews that President Bush and Vice President Cheney have been giving recently help me understand why they acted with such contempt for our Constitution and our values — but also reinforce my confident belief, and my fervent hope, that history will throw the book at them.

The basic argument that they’re making deserves to be taken seriously. I don’t think either man would object to my summing it up in one sentence: We did what we did to keep America safe.

That terse formulation of the Bush-Cheney apologia leaves out important details. Cheney came into office with preconceived ideas about restoring executive branch powers and prerogatives that he believed had been lost after Vietnam and Watergate; Bush either shared Cheney’s views or was willing to go along. But the main narrative of the Bush presidency began with the Sept. 11, 2001, attacks by al-Qaeda terrorists — the worst such assault on American soil.

In a not-for-attribution chat with a member of the Bush Cabinet a couple of years ago, conversation turned to 9/11. I said something like, “I can imagine what that day must have felt like for you.” The response was immediate: “No, you can’t.”

The official went on to describe the chaos and anguish — the shock of seeing the 110-story World Trade Center towers collapse into rubble, the fear that other hijacked planes might still be in the air, the gut feeling that the president and those around him were personally under attack. The official talked of how administration officials racked their memories to think of anything they might have done differently to prevent the 9/11 attacks. I doubt that anyone in the Situation Room actually quoted Malcolm X, but essentially a vow was taken to protect the country from another assault “by any means necessary.”

These were human reactions, understandable and appropriate at the time. The truth is that the administration had missed signs that an attack was brewing — most famously, the president’s daily brief titled “Bin Laden Determined to Strike in U.S.” But these portents were lost amid the avalanche of information that buries every president every single day. Anyone in Bush’s position would have been filled with grief, anger and resolve.

Initial reactions are supposed to give way to reasoned analysis, however. For Bush and most of his top aides, this didn’t happen until far too late.

For Cheney, apparently it never happened at all. In an interview broadcast Sunday, he invited Fox News’ Chris Wallace to “go back and look at how eager the country was to have us work in the aftermath of 9/11 to make certain that that never happened again.” People have since become “complacent,” he said, but the administration’s actions have “produced a safe 7.5 years, and I think the record speaks for itself.”

That record, admirably, includes the overthrow of the Taliban regime in Afghanistan, the dismantling of al-Qaeda’s infrastructure and the killing or capture of some of the terrorist organization’s most important operatives. Shamefully, however, it also includes the violation of international and U.S. legal norms by subjecting terrorist suspects to indefinite detention and cruel, painful interrogation; the creation of a mini-gulag of secret CIA-run prisons abroad; and unprecedented domestic surveillance without court supervision — all justified, Cheney maintains, by a state of “war” that has no foreseeable end.

The Bush-Cheney record also includes the invasion of a country — Iraq — that had nothing whatsoever to do with 9/11. This misadventure has claimed more than 4,000 American lives, wasted hundreds of billions of dollars and grievously damaged our strategic position in the Middle East. In an interview with Martha Raddatz of ABC News earlier this month, Bush claimed credit for vanquishing al-Qaeda’s forces in Iraq. When Raddatz pointed out that there were no al-Qaeda forces in Iraq until after the U.S. invasion, the president answered, “Yeah, that’s right. So what?”

Here’s so what: Bush and Cheney, understandably shaken by an unprecedented act of terrorism, declared and prosecuted a “war” without specifying who the enemy is. Rather than focus on the architect and sponsor of the 9/11 attacks, Osama bin Laden, they turned away to lash out at others in pre-emptive blows that dishonored our nation’s most precious ideals.

History will note that the point of the Constitution is that the ends don’t always justify the means — and that nowhere in the document can be found the phrase “so what?”

December 23, 2008

By Steven Malanga

An international group holds an event every holiday season called Buy Nothing Day, in which members protest our consumer culture by urging shoppers to restrain for at least one day from shopping. This year, not surprisingly, the event was reportedly a smashing success. Although I imagine many shoppers took part unwillingly, having lost their jobs or witnessed the value of their assets plummet, others said they were buying nothing, or at least buying considerably less this year, in sympathy with those who were struggling.

“Even though we can afford to spend more, we’re not going to,” someone identified as Mary from Brenham, Texas told CNN. “It just doesn’t seem right to spend lots of money when so many are hurting.” Bart, the head of a nonprofit in Springfield, Missouri, told a local newspaper that with so many people struggling, “It just doesn’t feel right to go out and spend a bunch of money on Christmas gifts.” The sentiment seemed pretty much the same across the pond, where a columnist for the London Times observed that rich friends “have all cancelled their customary Christmas holidays. Sure, they could afford Tobago as usual, but this year it just doesn’t feel right.”

Not once during the dozens of stories I saw about Buy Nothing Day or about consumers’ general holiday abnegation did anyone, including the reporter or TV producer constructing these accounts, seem to consider that it might actually be counterproductive for those who can afford to spend as much or more this year on gifts to instead spend less. Indeed, many of these stories ran virtually side-by-side with gloomy reports of layoffs, retail bankruptcies, companies cutting wages and eliminating bonuses, and factories going on furloughs because of the difficult holiday shopping environment. Yet it is as if the two stories were virtually unconnected.

Why is it that in tough times it seems rational and even noble to deny oneself, even when doing so only spreads the pain? Much of the reason for this may be that we humans have been living in the modern, consumer-driven economy for just a few hundred years�”since the great leap forward of the Industrial Revolution, when technological advances greatly expanded humans’ productive capabilities, vastly increasing standards of living in the process. By contrast, we spent a hundred thousand years or so living in tribes and roving bands where existence was day-to-day and tribal members shared resources to survive. We’re still not always comfortable reconciling the consumerism that’s at the center of our economy since the Industrial Revolution with the egalitarianism of what anthropologists call our deep history.

That’s why during times of economic stress some of us still preach sacrifice and restraint because it appears unseemly to have and consume too much when others are going wanting. Doing otherwise is politically unacceptable. When President Bush, for instance, urged Americans after 9-11 to shop enthusiastically during the 2001 holiday season, critics derided him for emphasizing something as frivolous as consumerism at a time of deep national pain and introspection.

Maybe it’s best that our leaders simply lead by example rather than words. Our President-elect, for instance, is now vacationing with his family in Hawaii after spending nearly two years running a grueling campaign for office. With a hefty bank account thanks to two-best selling books, President-elect Obama isn’t about to deny his family or himself the way those British rich folks are denying themselves their Tobago vacations this year, and our citizens of Hawaii are no doubt grateful to him for his business.

Still, our press and cultural commentators have it in for anyone who spends lavishly during times like this, even if it is a business investing generously in its future. At Major League Baseball’s winter meetings in early December, a number of teams made whopping contract offers to star players who were free agents. The press subsequently roasted these free-spending teams for heaping riches on guys whose only contribution to our society is to hit a fastball at 95 miles per hour, or throw one that fast. What a strange reaction to businesses that are investing to improve their product during a downturn?”a perfectly sensible strategy if you have money to spend, talent is available and your competitors are being cautious.

The winter baseball meetings were Christmas come early for a few players, and one hopes they celebrated appropriately by spending some of their new-found wealth and in the process boosting the economy. As one of the 20th Century’s most notable non-believers, Ayn Rand, observed about Christmas, “The gift buying…stimulates an outpouring of ingenuity in the creation of products devoted to a single purpose: to give men pleasure.”

And to give them jobs. There’s still time, though just a little, to renounce your vow of moderation and buy liberally. It’s the least you can do for your fellow man.

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December 22, 2008

By Ed Gillespie

As the year draws to an end and President Bush enters his final month in office, there is much commentary about the Administration’s record over the past eight years. Unsurprisingly, many of these stories assail and distort the President’s record and recycle myths and unfounded allegations that have been leveled for the better part of his two terms. Historical accuracy requires a response to the litany of attacks leveled against President Bush, and while there’s not enough space to respond to all of them, here are five of the most egregious:

Myth 1: The last eight years were awful for most Americans economically and President Bush’s deregulatory policies caused the current financial crisis.

Reality:

President Bush’s time in office is ending as it began, with our economy under stress. The recession President Bush inherited as he entered office ran through the attacks of September 11, 2001, but during the recovery that followed, and due in no small part to the tax relief President Bush worked with Congress to provide, this country experienced its longest run of uninterrupted job growth - 52 straight months, with 8.3 million jobs created.

This reflected six consecutive years of economic growth from the Fourth Quarter of 2001 until the Fourth Quarter of 2007. From 2000 to 2007, real GDP grew by more than 17 percent, a remarkable gain of nearly 2.1 trillion dollars. This growth was driven in part by increased labor productivity gains that have averaged 2.5 percent annually since 2001, a rate that exceeds the averages of the 1970s, ’80s, and ’90s. In the same period, real after-tax income per capita increased by more than 11 percent, and there was a 4.7 percent increase in the number of new businesses formed. The current economic challenges, which the President and his Administration have responded to aggressively, threaten to reverse some of these gains - but the gains cannot be denied.

As for the current crisis, the President and his economic team have taken unprecedented actions to stabilize the financial sector and avert a collapse. While there are a number of causes of the housing and credit crises that are at the root of our current economic troubles, deregulation by the Bush Administration is simply not one of them. In fact, one of the circumstances that contributed to the crisis was the failure of the government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, which President Bush long tried to subject to greater regulation. In April 2001, three months after taking office, the President warned in his first budget that the size of the two GSEs were a “potential problem” that “could cause strong repercussions in financial markets, affecting Federally insured entities and economic activity.” In 2003, the Administration began calling for a new GSE regulator, and over the next five years, the Administration continued to call for GSE reform only to be accused by Democrats in Congress of creating artificial fears and advocating for ill-advised proposals. By the time Congress finally acted in 2008 to provide the oversight the President requested, it was too late to prevent systemic consequences. Had the Administration’s initial reform proposals been adopted, some of today’s turmoil in our financial markets may have been averted.

Myth 2: President Bush’s tax cuts only benefitted the wealthy and were paid for by sacrificing investments in health care and education.

Reality:

There are not 116 million “wealthy Americans,” but that’s how many taxpayers benefited from the President’s tax relief. The across-the-board tax cuts provided tax relief to every American who pays income taxes, created a new bottom 10 percent bracket rate, doubled the child tax credit to $1,000, and actually increased the share of the Federal income tax burden paid by the top 10 percent of individual earners from 67 percent in 2000 to 70 percent in 2005. Furthermore, this Administration removed 13 million low-income earners from the income tax rolls completely.

The economic growth spurred by tax relief also spurred growth in Federal tax receipts. In fact, the Federal Treasury realized the largest three-year increase of revenue in 26 years, and tax receipts grew more than $542 billion between 2000 and 2007. And yes, much of that money went to investments in health care and education.

President Bush provided more than 40 million Americans with better access to prescription drugs by creating the market-based Medicare Prescription Drug Benefit. And it is one of the rare government programs that actually costs less than expected. Projected overall program spending between 2004 and 2013 is approximately $240 billion lower, nearly 38 percent, than originally estimated, thanks to the market-oriented principles included at President Bush’s insistence.

Despite the heated rhetoric over children’s health insurance (S-CHIP) legislation last year, estimates from a 2007 Federal survey show that the number of uninsured children under the age of 18 actually declined by 800,000 from 2001 to 2007. From 2007 to 2008, the number of people covered by affordable and portable Health Savings Account-eligible plans increased 35 percent. Additionally, since President Bush took office, more than 1,200 community health centers have opened or expanded nationwide, which has helped provide treatment to nearly 17 million people.

Federal spending on education has increased nearly 40 percent under President Bush. Additionally, Pell Grant funding nearly doubled during the Administration, which is expected to help more than 5.5 million students attend college in the 2008-09 school year, 1.2 million more students than were assisted by Pell Grants in the 2001-02 school year. This financial aid assistance also helps account for the fact that 66 percent of high school graduates from the class of 2006 enrolled in colleges, compared to 63 percent in 2000.

Perhaps more importantly, the President’s No Child Left Behind Act has delivered tangible results to students. Since the law was enacted, fourth-grade students have achieved their highest reading and math scores on record, eighth-grade students have achieved their highest math scores on record, and African-American and Hispanic students have posted all-time high scores in a number of categories, narrowing the gap between minority students and white students.

Myth 3: The President’s “go it alone” foreign policy ruined America’s standing in the world.

Reality:

Rarely can one see revisionist history occurring in the present, but this charge is nothing short of that. The United States acted with a multilateral coalition of partner nations to remove Saddam Hussein from power in Iraq after he failed to comply with the will of the international community, including numerous United Nations Security Council Resolutions. To ignore this fact is not only a distortion of history, but it is also an insult to the service members of our coalition partners who sacrificed their lives to contribute to the success we are now witnessing in Iraq. And in Afghanistan, approximately forty countries are currently deployed with American forces, including every one of our NATO allies.

The President also created a worldwide coalition of more than 90 nations to combat terrorist networks by sharing information, drying up their financing, and bringing their leaders to justice. To date, we have captured or killed hundreds of al-Qaeda leaders and operatives with the help of partner nations. Furthermore, the Administration established the Proliferation Security Initiative, which now includes more than 90 nations, and other multilateral coalitions to stop the proliferation of weapons of mass destruction.

The President successfully pushed for expanding NATO membership, generated international pressure on Iran to stop it from developing nuclear weapons, and organized the Six-Party Talks, which have resulted in North Korea committing to give up its nuclear weapons and abandon its nuclear programs. Verifying North Korea’s commitment will be a challenge, but at the most recent Six-Party Talks meeting, there was strong consensus among the five parties that North Korea must submit to a comprehensive verification regime that accords with international standards.

U.S. ties in Asia have been strengthened over the past eight years, and the Administration has built strong relationships with China, Japan, and South Korea, among others. We have signed an historic civilian nuclear power agreement with India, reflecting a fundamental change in our relationship. Pro-American leaders have been elected in Germany, France, and Italy. Eastern European countries such as Georgia, Ukraine, and Kosovo treasure their relationships with the United States, and no president has done more to improve health and security in the nations of Africa. We have also strengthened cooperation with Latin America, including initiatives with Brazil on biofuels and with Mexico and Central America on fighting organized crime. Finally, when the President took office, America had trade agreements in force with only three countries, versus 14 today - with three additional agreements approved by Congress but not yet in force and agreements with three countries that are awaiting Congressional approval.

Myth 4: The war in Iraq caused us to “take our eye off the ball” in Afghanistan and with al Qaeda.

Reality:

Iraq and Afghanistan are two fronts in the same war, and while the success of the surge in Iraq has been visible, we have also had a quiet surge in Afghanistan. The U.S. has continuously and aggressively fought side-by-side with Afghans and our allies to defeat the Taliban and al Qaeda in Afghanistan. The United States has provided nearly $32 billion for security, political, and economic development assistance and the international community has provided more than $55 billion to Afghanistan since 2001.

An additional U.S. Marine battalion deployed to Afghanistan in November and they will be followed by an Army combat brigade of about 3,400 troops in early 2009. U.S. forces now total approximately 31,000, and are joined by nearly as many coalition troops. The United States and our allies are working with Afghanistan to help it nearly double the size of the Afghan National Army over the next five years, from 79,000 now trained to 134,000 in 2014.

We have also deployed Provincial Reconstruction Teams to ensure security gains are followed by real improvements in daily life, and we have helped local communities strengthen their economies and create jobs, deliver basic services, improve governance and fight corruption, and build or repair key infrastructure such as roads, bridges, hospitals, and schools. More than six million children, approximately two million of them girls, are now in Afghan schools, compared to fewer than one million in 2001.

In this Global War on Terror, we do not have the luxury to fight on one battlefront at a time. To defeat the terrorists, we must fight them overseas so we don’t have to fight them here at home. Since 9/11, we have successfully captured or killed dozens of al-Qaeda’s senior leadership and hundreds of al-Qaeda operatives in two dozen countries, removed al-Qaeda’s safe-haven in Afghanistan and crippled al-Qaeda in Iraq, and disrupted numerous al Qaeda terrorist plots against the U.S., including a 2006 plot to blow up passenger planes traveling from London.

Myth 5: This Administration has been bad for the environment and ignored the problem of global warming.

Reality:

Given the liberal media’s failure to acknowledge this Administration’s true record on alternative energy, conservation, and climate change, it’s not surprising this charge has stuck. But here are some irrefutable data points: From 2001 to 2007, air pollution decreased by 12 percent, and fine particulate matter pollution is down 17 percent since 2001. Ethanol production quadrupled from 1.6 billion gallons in 2000 to 6.5 billion gallons in 2007, wind energy production has increased by more than 400 percent, and solar energy capacity has doubled. In 2007, solar installations increased more than 32 percent and the U.S. produced 96 percent more biodiesel (490 million gallons) than in 2006. The Administration also provided nearly $18 billion to research, develop, and promote alternative and more efficient energy technologies such as biofuels, solar, wind, clean coal, nuclear, and hydrogen.

This Administration has improved and protected the health of more than 27 million acres of Federal forest and grasslands, protected, restored, and improved more than three million acres of wetlands, and established the Papahānaumokuākea Marine National Monument, the world’s largest fully protected marine conservation area (nearly 140,000 square miles).

Much of the misperception about the President’s environmental record is born out of the President’s withdrawing the United States from the Kyoto Protocol, which did not include the effective participation of major developing countries such as India and China. Instead, the President worked to address climate change by launching the Major Economies Process, which convened the leaders of the world’s major economies, both developed and developing, to work on ways to further reduce greenhouse gas emissions and improve energy security without harming our economies or giving any nation a free ride. Finally, the President set the country on course to stop the growth of greenhouse gas emissions below projected levels by 2025 and invested more than $44 billion in climate change-related programs.

Some other items that are infrequently mentioned about the real record of the Bush Administration but are worth noting: Teenage drug use has declined 25 percent; in 2007, the violent crime rate was 43 percent lower than the rate in 1998; between 2005 and 2007, the chronically homeless population decreased approximately 30 percent; funding for veterans’ medical care has increased more than 115 percent; and as of 2005, the most recent abortion rate is at its lowest since 1974.

And one last fact: Our homeland has not suffered another terrorist attack since September 11, 2001. That, too, is part of the real Bush record.

More on RCP: Gas Prices Shouldn’t Set Our Energy Policy

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Hong Kong

I had no idea that many of those oil paintings that hang in hotel rooms and starter homes across America are actually produced by just one Chinese village, Dafen, north of Hong Kong. And I had no idea that Dafen’s artist colony — the world’s leading center for mass-produced artwork and knockoffs of masterpieces — had been devastated by the bursting of the U.S. housing bubble. I should have, though.

“American property owners and hotels were usually the biggest consumers of Dafen’s works,” Zhou Xiaohong, deputy head of the Art Industry Association of Dafen, told Hong Kong’s Sunday Morning Post. “The more houses built in the United States, the more walls that needed our paintings. Now our business has frozen following the crash of the Western property market.”

Dafen is just one of a million Chinese and American enterprises that constitute the most important economic engine in the world today — what historian Niall Ferguson calls “Chimerica,” the de facto partnership between Chinese savers and producers and U.S. spenders and borrowers. That 30-year-old partnership is about to undergo a radical restructuring as a result of the current economic crisis, and the global economy will be highly impacted by the outcome.

After all, it was China’s willingness to hold the dollars and Treasury bills it had earned from exporting to America that helped keep U.S. interest rates low, giving Americans the money they needed to keep buying shoes, flat-screen TVs and paintings from China, as well as homes in America. Americans then borrowed against those homes to consume even more — one reason we enjoyed rising wealth without rising incomes.

This division of labor not only nourished our respective economies, but also shaped our politics. It enabled China’s ruling Communist Party to say to its people: “We will guarantee you ever-higher standards of living and in return you will stay out of politics and let us rule.” So China’s leaders could enjoy double-digit growth without political reform. And it enabled successive U.S. administrations, particularly the current one, to tell Americans: “You can have guns and butter — subprime mortgages with nothing down and nothing to pay for two years, ever-higher consumption and two wars, without tax increases!”

It all worked — until it didn’t.

With unemployment now soaring across the U.S., said Stephen Roach, the chairman of Morgan Stanley Asia, Americans — “the most over-extended consumer in world history” — can no longer buy so many Chinese exports. We need to save more, invest more, consume less and throw out most of our credit cards to bail ourselves out of this crisis.

But as that happens, we need China to take our discarded credit cards and distribute them to its own people so they can buy more of what China produces and more imports from the rest of the world. That’s the only way Beijing can sustain the minimum 8 percent growth it needs to maintain the political bargain between China’s leaders and led — not to mention pick up some of the slack in the global economy from America’s slowdown.

However, if I’ve learned one thing here, it’s just how hard doing that will be. China’s whole system and culture nourish saving, not spending, and changing that will require a huge “cultural and structural” shift, said Fred Hu, chairman for Greater China for Goldman Sachs.

In China, for instance, to buy a home you have to put at least 20 percent down, and the average is 40 percent. If you try to walk away from the mortgage, the bank will come after your personal assets. Moreover, China can’t just shift production from the U.S. market to its own consumers. Not many Chinese villagers want to buy $400 tennis shoes or Christmas tree ornaments.

Also, China has no real Social Security, health insurance or unemployment insurance. Without that social safety net, it’s hard to see how Chinese don’t end up saving most of their stimulus. “You open up the newspaper every day and you hear about this factory shutting down or that supplier going belly up,” said Willie Fung, whose company, Top Form International, is the world’s leading bra maker. “You can never be too careful in this financial climate.”

As such, “the world should not have a false hope that China can cushion the global downturn,” by stimulating its domestic demand in a big way, said Frank Gong, head of China research for JPMorgan Chase. “The best thing China can do is keep its own economy stable.”

It’s good advice. China is not going to rescue us or the world economy. We’re going to have to get out of this crisis the old-fashioned way: by digging inside ourselves and getting back to basics — improving U.S. productivity, saving more, studying harder and inventing more stuff to export. The days of phony prosperity — I borrow cheap money from China to build a house and then borrow on that house to buy cheap paintings from China to decorate my walls and everybody is a winner — are over.

December 21, 2008

BRIAN HAMILTON is chief executive officer of Sageworks Inc. Contact: brian.hamilton@sageworksinc.com

Much has been written about the economy, and, if you accept certain assumptions from what you read, you might think that we are in the midst of a global depression. It’s important to put the current economy in perspective.

Last quarter, U.S. gross domestic product fell at a rate of 0.5 percent, which means that the total value of goods and services produced in the country fell by a half of one percentage point last quarter over the previous quarter. For the first two quarters of this year, GDP grew by 0.9 percent and 2.8 percent, indicating that economic growth is relatively flat this year, but that it is not falling off a cliff.

This isn’t the first time GDP has fallen, and it won’t be the last. The last decrease in GDP was in the fourth quarter of 2007, and before that was in 2001. A decrease in GDP after almost six years of increases is not positive, but almost predictable.

Some would say that we cannot only look at GDP, so let’s look at other factors. Interest rates remain at historically low levels. Loan volume in the country, according to the FDIC and contrary to what you read about the credit crisis, actually increased last quarter compared to the same quarter last year.

How about employment? According to the Bureau of Labor Statistics, unemployment sits at 6.7 percent. At this time last year, unemployment was 4.7 percent. The decrease in employment is not favorable, but historically an unemployment rate of 6.7 percent is not close to devastating.

The 50-year historical rate of unemployment is 5.97 percent. Most economists agree that the natural rate of unemployment, which is the lowest rate due to the fact that people change jobs or are between jobs, is around 4 percent. So, today we sit at 2.7 percent above that rate.

Once again, the very recent trend is not good, but it is certainly not horrifying. Americans have good hearts and empathize with those who are unemployed, yet it would be easy to go too far in our assumptions on how the working population is currently affected in aggregate.

Look at personal income today. Personal income is income received by individuals from all sources, including employers and the government. Personal income rose last quarter compared to a year ago, according to the Bureau of Economic Analysis. Compared to five years ago, personal income has risen by 32.1 percent. Even considering that inflation was 18.13 percent in this period, people are generally making more money than they used to.

Next, there is inflation. The inflation rate measures the strength of the dollar you hold today as compared to a year ago. The inflation rate is currently 3.66 percent. Over the past 50 years, the inflation rate has averaged about 4.2 percent. Inflation remains well within control.

Now, the skeptics reading this will undoudebtly point to other (I believe, far lesser) statistics that validate their gloomy view of the economy and the direction of the country. I ask the reader: If people are employed, are making good wages, can borrow inexpensively, hold a dollar that is worth largely what it was worth a year or five years ago, and live in a country where the value of goods and services is rising, tell me exactly where the crisis is?

There is no doubt that the economy has slowed, but slowness does not equal death. It is true that the financial markets are a mess (and the depreciation of the value of equities is both scary and bad), but analysts typically go too far in ascribing the fall of the financial markets with the fall of a whole economy. The markets are an important component of the economy, but the markets are not the totality of the economy.

No one can say whether conditions will worsen in the future. However, we have learned that the American economy has been tremendously resilient over the past 200 years and will probably remain so, as long as the structural philosophies that it has been built upon are left intact.

From Rev. Wright to Rev. Warren
by William Kristol 12/29/2008

By James V. Grimaldi and Philip Rucker
Washington Post Staff Writers
Friday, December 19, 2008; A01

Former president Bill Clinton’s disclosure yesterday that foreign governments and state-sponsored agencies have donated between $75 million and $165 million to his foundation highlighted a series of potential conflicts that Hillary Rodham Clinton could face should she become secretary of state.

The kingdom of Saudi Arabia made one of the largest contributions, between $10 million and $25 million, as did the Australian government’s overseas aid program and a Dominican Republic agency that fights AIDS. The William J. Clinton Foundation also raised more than $1 million each from the governments of Brunei, Kuwait, Oman and Qatar.

The former president had resisted releasing the list of donors during his wife’s presidential campaign, but he agreed to do so when it became a possible issue as President-elect Barack Obama was considering whether to make her part of his Cabinet.

The list — containing more than 200,000 donor names — shows the extent to which Bill Clinton relied on foreign governments, especially those of Middle Eastern oil states, to establish his foundation over the past decade. In many cases, those governments have national interests that have routinely come before the State Department and other U.S. government agencies.

Obama transition officials believe Clinton’s disclosure “goes above and beyond in preventing conflicts,” spokesman Tommy Vietor said. “Past donations to the Clinton Foundation have no connection to Senator Clinton’s prospective tenure as secretary of state. Going forward, all donors will be disclosed on an annual basis, and new donations from foreign governments will be scrutinized by government ethics officers.”

The release of the Clinton donors shows for the first time the scope of his international fundraising and charitable efforts since leaving the White House in 2001. Norway and the national charitable lottery of the Netherlands gave more than $5 million, for example, and the Swedish lottery also donated. The Jamaican and Italian governments each contributed more than $50,000.

“It is going to be complex to disassociate the specialized interests of the foundation of Bill Clinton from certain foreign interests that are represented by the U.S. government,” said James Thurber of American University’s Center for Congressional and Presidential Studies. “But I think they can do it. I don’t think it is a major issue yet, but you never know, when it comes to Bill Clinton, what might come out.”

Since it was established in 1997, the Clinton Foundation has raised more than $500 million, which has financed construction of Clinton’s presidential library in Little Rock as well as charitable programs in global health, poverty, climate change and education. The donations have gone to an estimated 150 countries and provided medication to some 1.4 million people living with AIDS, according to foundation staff. In partnership with former president George H.W. Bush, the foundation also raised millions of dollars for recovery efforts along the Gulf Coast after Hurricane Katrina.

The list released yesterday includes some controversial figures and companies. Affiliates of the Korean conglomerate Hanwha — Hanwha L&C, Hanwha Engineering and Construction, and Hanwha Stores — donated about $1 million after Clinton traveled to Seoul in 2003 and appeared with Hanwha Group Chairman Kim Seung-youn. Kim has been charged and jailed in Korea on public corruption allegations.

Another donation followed Clinton’s trip to Kazakhstan in 2005 on the private jet of Frank Giustra, a financier of mining ventures. On the trip, Clinton praised Kazakhstan’s authoritarian president, and Giustra later entered into agreements to invest in uranium projects controlled by Kazakhstan’s government. Giustra donated $10 million to $25 million, and the Clinton Giustra Sustainable Growth Initiative gave between $1 million and $5 million.

A donation of more than $25,000 came from Andre Agapov, a Russian mining company owner who allegedly worked with the Russian secret police for President Boris Yeltsin.

Other contributors include Friends of Saudi Arabia and the Dubai Foundation, as well as Saudi businessman Nasser Al-Rashid, each giving more than $1 million. Haim Saban, the Egyptian-born media tycoon who funds many Israeli initiatives, gave more than $5 million.

Among the top donors were foundations created by Microsoft founder Bill Gates and his wife, Melinda Gates, and Scottish retail-clothing executive Tom Hunter. Also on the list of the biggest contributors, giving between $10 million and $25 million each, are real estate and Hollywood mogul Stephen L. Bing, New York billionaire B. Thomas Golisano, Gateway computer co-founder Theodore W. Waitt and Chicago media executive Fred Eychaner. Black Entertainment Television founder Robert L. Johnson gave more than $1 million.

Billionaire financier and political supporter George Soros and his Open Society Institute each gave major donations, while the Arkansas-based foundations linked to retail giant Wal-Mart each gave at least $1 million.

The list also includes gifts from companies damaged in the current economic meltdown, such as Lehman Brothers, Citigroup, Freddie Mac and General Motors.

Entertainment figures on the list include producer Steven Spielberg, actors Cameron Diaz and the late Paul Newman, and singers Barbra Streisand and Carly Simon. New York Yankees owner George Steinbrenner and Formula One driver Michael Schumacher also donated.

“I want to personally express my deepest appreciation to our many contributors, who remain steadfast partners in our work to impact the lives of so many around the world in measurable and meaningful ways,” Bill Clinton said in a statement. “We have just begun — and it is an honor and privilege to be on this journey alongside each and every person who is committed to our foundation’s ongoing charitable mission.”

The foundation did not release the exact amounts or dates for donations, but it did include donors who gave very small amounts, going beyond the normal requirements for federal campaign disclosures. The donors were classified by amount of their gifts, within ranges.

Clinton released more detail than that promised by President Bush, who has said he does not plan to release names of donors, or George H.W. Bush, who also received contributions of at least $1 million from Oman, Saudi Arabia and the United Arab Emirates. The elder Bush also collected more than $50,000 from Japan, Hong Kong and Thailand.

Former president Jimmy Carter’s center, which was a model for Clinton’s, releases the names of $1 million-plus donors, and they include foreign governments as well.

Research editor Alice Crites, database editor Sarah Cohen, and staff writers Matthew Mosk, Dan Morgan, Steven Mufson, Derek Kravitz and Mary Pat Flaherty contributed to this report.

This article is by David E. Sanger, Bill Vlasic and Micheline Maynard.

WASHINGTON — The White House raised for the first time on Thursday the prospect of forcing General Motors and Chrysler into a managed bankruptcy as a solution to save the companies from financial collapse.

The White House announced early on Friday that President Bush would make a statement at 9 a.m. Eastern time about efforts to negotiate a bailout for the domestic auto industry.

On Thursday, his spokeswoman, Dana Perino, confirmed growing speculation within legal circles that the president and Treasury Secretary Henry M. Paulson Jr. were considering the step.

“There’s an orderly way to do bankruptcies that provides for more of a soft landing,” Ms. Perino said. “I think that’s what we would be talking about. That would be one of the options.”

A senior administration official, however, later described that option as a last resort, to be used only if an agreement for a voluntary overhaul of the industry could not be reached.

These officials said the preferred solution would be to force a restructuring of the industry outside of bankruptcy court, extracting concessions that would make the companies more cost-competitive with foreign automakers.

In return, the Treasury would tap the financial rescue fund, called the Troubled Asset Relief Program, to make loans to the companies.

After a week of talks between the automakers and the Treasury Department over the terms of a possible bailout, Ms. Perino on Thursday said, “we’re very close.”

President Bush, speaking on Thursday at the American Enterprise Institute, an organization dedicated to free market principles, said that he had determined that the economy was too fragile to allow G.M. and Chrysler to fail. The companies have warned that will happen if they do not receive financial aid soon.

In his speech Thursday, Mr. Bush made clear that he wanted to avoid a “disorderly bankruptcy” because of “what it would do to the psychology of the markets.” But he also said he was “worried about putting good money after bad,” and suggested he would only approve a plan that allowed the auto companies to “become viable in the future.”

Mr. Bush’s comments, a month before he leaves office, made clear that he was worried by the idea of returning to Texas amid more economic chaos and the surge in unemployment that a collapse of the companies could cause.

“The autos obviously are very fragile,” he said. He added that he was concerned about what President-elect Barack Obama would face on Jan. 20. “I believe that good policy is not to dump him a major catastrophe in his first day of office,” he said.

What the White House appears to be envisaging is a package deal of concessions — and an injection of money from the TARP, the $700 billion financial bailout fund — to keep credit flowing for G.M. and Chrysler.

Taxpayer loans, the White House has said, would have first priority over all other debt. Ms. Perino said the goal was to “try to come up with something that would protect the taxpayers but not allow a collapse that would hurt everybody in America.”

But for Mr. Bush, that could be difficult to negotiate. If the autoworkers’ unions conclude they are likely to get a better deal from Mr. Obama, they are likely to stall negotiations and settle for a shorter-term loan.

After the White House raised the possibility of a bankruptcy, G.M.’s shares fell to $3.66.

Investors may have also been reacting to a report in The Wall Street Journal that said G.M. had restarted merger discussions with Chrysler. But a G.M. spokesman, Tony Cervone, said the automaker had not held any talks with Chrysler since late October, when G.M. suspended discussions because of its bleak financial condition. “Nothing has changed,” he said.

G.M. declined to comment on the Bush administration’s suggestion that an “orderly bankruptcy” was under consideration. But the company was surprised by the White House statements, according to G.M. officials who asked not to be identified because the discussions with the administration were not yet final.

The automaker’s senior executives have said repeatedly that bankruptcy was not a viable solution because consumers would be reluctant to buy a vehicle from a bankrupt automaker.

In July, CNW Marketing Research said a survey it conducted showed that 80 percent of prospective car buyers would not consider purchasing a vehicle from a bankrupt company. A more recent survey found that 51 percent of the people it interviewed said they would not buy a car from G.M. even if it received a government bailout.

“G.M. cannot afford to lose half of its prospective customers,” said Art Spinella, CNW’s president.

Spokesmen for Chrysler and Ford also declined to comment specifically on the inclusion of bankruptcy as an alternative.

Chrysler’s chairman, Robert L. Nardelli, has said that getting financing to reorganize in bankruptcy would be difficult given tight credit conditions. Ford is not seeking immediate government help.

There was no immediate comment from the United Automobile Workers union.

In a traditional bankruptcy proceeding, the U.A.W.’s contracts could be voided and the union forced to renegotiate benefits like health care.

The union’s president, Ron Gettelfinger, has said the U.A.W. is willing to make concessions if G.M. or Chrysler gets government loans that help them survive.

But Mr. Gettelfinger has said he believes that bankruptcy would cripple either company’s ability to sell cars. “There’s no question in my mind that people would not buy their vehicles,” he said in an interview.

Both companies are cutting production to stretch their available cash. On Friday, Chrysler will begin an unusual monthlong shutdown of all of its North American manufacturing plants in a bid to save money.

Legal experts said Thursday that despite discussion of an out-of-court solution, a revamping of G.M. and Chrysler might be difficult to accomplish outside of bankruptcy court, given the significant steps an overhaul would require.

“It’s not going to be easy, it’s not going to be pleasant, or palatable, but it’s the only solution that makes the least bit of sense,” said Hugh M. Ray, head of the bankruptcy practice at the Houston law firm Andrews Kurth, who has participated in major bankruptcy cases.

If the companies were to file for bankruptcy, major banks would provide financing, with federal funds as security for the bank loans for the companies to operate.

Some lawyers have suggested that the two companies could receive $25 billion, using $5 billion in federal funds to guarantee the banks’ loans, although auto industry analysts said the companies might need more.

G.M. has retained Harvey R. Miller, a longtime bankruptcy lawyer, as its adviser. It is also being advised by William Repko, an expert in restructuring with Evercore Partners who has worked with companies like United Airlines. G.M. is also working with Arthur B. Newman of the Blackstone Group.

Chrysler has retained the law firm of Jones Day to provide revamping expertise.

Mr. Ray said that a number of airlines went through bankruptcy protection earlier this decade, using federally backed loans awarded by the Air Transportation Stabilization Board, which was set up to aid the industry after the September 2001 attacks.

The board turned down United’s request, however, and the airline subsequently restructured under bankruptcy protection without federal money.

“United is still flying, and G.M. is not doing very well,” Mr. Ray said. “Their chickens have come home to roost, and now it’s inevitable” that G.M. seek bankruptcy protection, he added.

David E. Sanger reported from Washington and Bill Vlasic and Micheline Maynard from Detroit.

You probably sat in a fancier conference room the last time you refinanced or heard a pitch about life insurance. There’s a table, some off-brand mesh office chairs, a bookcase that looks as if it had been put together with an Allen wrench and instructions in Swedish.

To reach this room, you pass through a cubicle farm lightly populated by quiet young people. Either they have just arrived or they are just leaving, because their desks are almost bare. The place has a vaguely familiar feel to it, this air of transient shabbiness and nondescriptitude. You can’t quite put your finger on it …

“It’s like the set of The Office,” someone offers.

Bingo.

It is here that we find Barack Obama one soul-freezingly cold December day, mentally unpacking the crate of crushing problems — some old, some new, all ugly — that he is about to inherit as the 44th President of the United States. Most of his hours inside the presidential-transition office are spent in this bland and bare-bones room. You would think the President-elect — a guy who draws 100,000 people to a speech in St. Louis, Mo., who raises three-quarters of a billion dollars, who is facing the toughest first year since Franklin Roosevelt’s — might merit a leather chair. Maybe a credenza? A hutch?

But he doesn’t seem to notice. Obama is cheerfully showing his visitors around, gripping the souvenir basketball he received from Hall of Famer Lenny Wilkens, explaining a snapshot taken the day he played pickup with the University of North Carolina hoops team. (”They are so big and so fast and so strong, you know.”) Then, since those two items basically exhaust the room’s décor, Obama sits down on one of the mesh chairs and launches into a spoken tour of his world of woes. It’s a mind-boggling journey, although he shows no signs of being boggled — unless you count the increasingly prevalent salt in his salt-and-pepper hair. By now we are all accustomed to that Obi-Wan Kenobi calm, though we may never entirely understand it. In a soothing monotone, he highlights the scariest hairpin turns on his itinerary, the ones that combine difficulty with danger plus a jolt of existential risk. (See pictures of the Civil Rights movement from Emmett Till to Barack Obama.)

“It is not clear that the economy’s bottomed out,” he begins, understatedly. (The morning newspaper trumpets the worst unemployment spike in more than 30 years.) “And so even if we take a whole host of the right steps in terms of the economy, two years from now it may not have fully recovered.” That worries him. Also Afghanistan: “We’re going to have to make a series of not just military but also diplomatic moves that fully enlist Pakistan as an ally in that region, that lessen tensions between India and Pakistan, and then get everybody focused on rooting out militancy in a terrain, a territory, that is very tough — and in an enormous country that is one of the poorest and least developed in the world. So that, I think, is going to be a very tough situation.

“And then the third thing that keeps me up at night is the issue of nuclear proliferation,” Obama continues, sailing on through the horribles. “And then the final thing, just to round out my Happy List, is climate change. All the indicators are that this is happening faster than even the most pessimistic scientists were anticipating a couple of years ago.”

Score that as follows: one imploding economy, one deteriorating war in an impossible region and two versions of Armageddon — the bang of loose nukes and the whimper of environmental collapse. That’s just for starters; we’ll hear the unabridged version shortly.

But first, there is a bit of business to be dealt with, having to do with why you are reading this story in this magazine at this time of the year. It’s unlikely that you were surprised to see Obama’s face on the cover. He has come to dominate the public sphere so completely that it beggars belief to recall that half the people in America had never heard of him two years ago — that even his campaign manager, at the outset, wasn’t sure Obama had what it would take to win the election. He hit the American scene like a thunderclap, upended our politics, shattered decades of conventional wisdom and overcame centuries of the social pecking order. Understandably, you may be thinking Obama is on the cover for these big and flashy reasons: for ushering the country across a momentous symbolic line, for infusing our democracy with a new intensity of participation, for showing the world and ourselves that our most cherished myth — the one about boundless opportunity — has plenty of juice left in it.

See pictures of Obama’s nation of hope.

See pictures of Obama’s college years.

But crisis has a way of ushering even great events into the past. As Obama has moved with unprecedented speed to build an Administration that would bolster the confidence of a shaken world, his flash and dazzle have faded into the background. In the waning days of his extraordinary year and on the cusp of his presidency, what now seems most salient about Obama is the opposite of flashy, the antithesis of rhetoric: he gets things done. He is a man about his business — a Mr. Fix It going to Washington. That’s why he’s here and why he doesn’t care about the furniture. We’ve heard fine speechmakers before and read compelling personal narratives. We’ve observed candidates who somehow latch on to just the right issue at just the right moment. Obama was all these when he started his campaign: a talented speaker who had opposed the Iraq war and lived a biography that was all things to all people. But while events undermined those pillars of his candidacy, making Iraq seem less urgent and biography less relevant, Obama has kept on rising. He possesses a rare ability to read the imperatives and possibilities of each new moment and organize himself and others to anticipate change and translate it into opportunity. (See pictures of Obama’s nation of hope.)

The real story of Obama’s year is the steady march of seemingly impossible accomplishments: beating the Clinton machine, organizing previously marginal voters, harnessing the new technologies of democratic engagement, shattering fundraising records, turning previously red states blue — and then waking up the day after his victory to reinvent the presidential-transition process in the face of a potentially dangerous vacuum of leadership. “We always did our best up on the high wire,” says his campaign manager, David Plouffe.

Obama’s competence fills him with a genuine self-confidence. “I’ve got a pretty healthy ego,” he allows. That’s clear when he offers a checklist for voters to use in judging his performance two years from now. It’s quite an agenda. Listen: “Have we helped this economy recover from what is the worst financial crisis since the Great Depression? Have we instituted financial regulations and rules of the road that assure this kind of crisis doesn’t occur again? Have we created jobs that pay well and allow families to support themselves? Have we made significant progress on reducing the cost of health care and expanding coverage? Have we begun what will probably be a decade-long project to shift America to a new energy economy? Have we begun what may be an even longer project of revitalizing our public-school systems?”

There’s more: “Have we closed down Guantánamo in a responsible way, put a clear end to torture and restored a balance between the demands of our security and our Constitution? Have we rebuilt alliances around the world effectively? Have I drawn down U.S. troops out of Iraq, and have we strengthened our approach in Afghanistan — not just militarily but also diplomatically and in terms of development? And have we been able to reinvigorate international institutions to deal with transnational threats, like climate change, that we can’t solve on our own?”

And: “Outside of specific policy measures, two years from now, I want the American people to be able to say, ‘Government’s not perfect; there are some things Obama does that get on my nerves. But you know what? I feel like the government’s working for me. I feel like it’s accountable. I feel like it’s transparent. I feel that I am well informed about what government actions are being taken. I feel that this is a President and an Administration that admits when it makes mistakes and adapts itself to new information.’”

Can he really achieve all that? Plenty of voters will be happy if he aces only Item 1 on his list. But the essence of both Obama’s strength and his promise is that, according to a recent poll, a strong majority of Americans believe he will accomplish most of what he aims to do. For having the confidence to sketch that kind of future in this gloomy hour and for showing the competence that makes Americans hopeful that he will pull it off, Barack Obama is Time’s Person of the Year for 2008.

I. Simple Competence
In some tellings, Obama’s journey to the white house started with his little-noticed but carefully nuanced speech against the Iraq war in 2002. In other versions, it began with his electrifying address to the Democratic Convention in 2004. Those moments blazed with potential, true, but something more was necessary: a certain appetite among the electorate. The country had to be hungry for the menu he offered, and in that sense, his path’s true beginning lay in the drowned precincts of New Orleans in the sweltering, desperate late summer of 2005.

Hurricane Katrina blew away the last gauzy veil from an ugly specter of executive incompetence in American politics. When the people of New Orleans needed leadership, the Republican Administration in Washington proved useless. The Democratic governor and mayor were pitiful. At long last, our government was united — but under an appalling banner of fecklessness. The moral bankruptcy of the spin doctors was laid bare: no soul remained gullible enough to believe that Brownie was doing a heckuva job.

After Katrina, demand collapsed for the very qualities that Obama lacked as a candidate: empty boasts, finger-pointing, backstabbing and years of experience inside a government that couldn’t deliver bottled water to the stranded citizens of a major U.S. city. Spare us the dead-or-alive bravado, the gates-of-hell bluster, the melodrama of the 3 a.m. phone call. A door swung open for a candidate who would merely stand and deliver. Simple competence — although there’s nothing simple about it, not in today’s intricate, interdependent, interwoven, intensely dangerous world.

See pictures of Barack Obama’s campaign behind the scenes.

See pictures of Obama on Flickr.

His official theme was change, but a specific kind of change: the nuts-and-bolts kind you can see and measure. Voters were invited to believe because Obama kept delivering the goods. Certainly he made mistakes and gave up on some ideas while doubling back on others — his promise to stick to the existing campaign-finance system, for example. On the whole, though, he was a doer. Obama told people that a black man could win white votes. In Iowa he proved it. He said a broad-gauge campaign could win in GOP strongholds; along came Indiana and Virginia and North Carolina. He declared that a new approach to politics would topple the old Clinton-Bush seesaw, and topple it he did. He sank the three-pointer with the cameras rolling. Made a speech in a football stadium feel intimate. Some might say these are not exactly Churchillian achievements, but in the land of the hapless, the competent man is king. In the end, his campaign e-mail list numbered some 13 million people, of whom more than 3.5 million put actual skin in the game — money, volunteer hours or both. Obama’s most formidable opponent, Hillary Clinton, tried to convince voters that he was all talk and no action, a vessel empty but for intoxicating fumes. Yet he was the one whose campaign ran like clockwork, while hers was a fratricidal mess. And by Nov. 4, the strongest party in the U.S. was no longer the Republican Party or the Democratic Party; it was the Obama Party.

II. Filling the Vacuum
“A presidential campaign is like an MRI of the soul,” says David Axelrod, Obama’s chief strategist. “And one of the great revelations of this process, certainly the most thrilling revelation to me, was to learn what a great manager this guy is. We had no way of knowing that when we started. When he decided to run, we had no political infrastructure at all. There was just a handful of us, and we were setting off to challenge the greatest political operation in the Democratic Party.”

Keep in mind that Obama, as Rudy Giuliani put it at the Republican Convention in September, had “never led anything, nothing, nada” — certainly not a sprawling organization spread from coast to coast. But he did have a philosophy of leadership, which he explains like this: “I don’t think there’s some magic trick here. I think I’ve got a good nose for talent, so I hire really good people. And I’ve got a pretty healthy ego, so I’m not scared of hiring the smartest people, even when they’re smarter than me. And I have a low tolerance of nonsense and turf battles and game-playing, and I send that message very clearly. And so over time, I think, people start trusting each other, and they stay focused on mission, as opposed to personal ambition or grievance. If you’ve got really smart people who are all focused on the same mission, then usually you can get some things done.”

Stop and look back at those last few words, because they are a telltale sign of Obama’s pragmatism. A persistent question during the campaign — it became the heart of John McCain’s message in the closing weeks — was whether Obama was some kind of radical, a terrorist-befriending socialist masquerading as Steady Freddy. As he builds his Administration, though, he is emerging as a leader who just wants to “get some things done.” (Read “The New Liberal Order.”)

Obama is a businesslike boss. He prefers briefing papers tightly written and shows up for meetings fully prepared. He expects people to challenge him when they think he is wrong and to back up their ideas with facts. He’s not a shouter — “Hollering at people isn’t usually that effective,” he explains — but if he thinks you’ve let him down, you’ll know it. “What was always effective with me as a kid — and Michelle and I find it effective with our kids — is just making people feel really guilty,” he says. “Like ‘Boy, I am disappointed in you. I expected so much more.’ And I think people generally want to do the right thing, and if you’re clear to them about what that right thing is, and if they see you doing the right thing, then that gives you some leverage.”

Again, take a second to reread, this time the bit where he says “people generally want to do the right thing.” Trust of this kind has been in short supply for many years in American politics, where the dominant attitude is that every disagreement is a sign of bad faith and every opponent is assumed to be malevolent. Obama’s attitude was ridiculed as kumbaya naiveté during the campaign, but trust proved to be essential to his victory. His campaign entrusted millions of volunteers with unprecedented authority to download information about prospective voters, to assign themselves to make phone calls and canvass their own neighborhoods and apartment buildings, and to keep the campaign abreast of their progress. A typical presidential effort is top-down, intensely protective of its data and strategies. Obama’s approach seemed to court mischief or even chaos. “There was a lot of snickering among the political pros,” says Plouffe. “They couldn’t believe that we were giving people we didn’t know access to our data and trusting them to handle it honestly. But it was enormously important because it made people feel that much more accountable: ‘These are my three blocks, and everyone’s counting on me.’”

See pictures of Obama on Flickr.

See the Six Degrees of Barack Obama.

Yes, Obama could talk — like nobody’s business — but talk didn’t win the election. According to the daily tracking polls, the tumblers clicked into place precisely at the moment the financial hurricane hit, when the wizards of Wall Street proved as incompetent as Oz and neither the President nor the leaders of Congress nor the Treasury boss nor Senator McCain could deliver a rescue package. When this group failure provoked a stock-market crash in early October, Americans asked, “Can’t anybody here play this game?” Astounding as it would have seemed scant months before, their gaze fell on the one fixed point in the widening gyre: a guy named Barack Hussein Obama. (See pictures of Barack Obama’s family tree.)

III. Fear Itself
As White House Chief of Staff during the final years of the Clinton Administration, John Podesta became accustomed to short nights and emotional roller coasters. Still, he found it a bit strange to be headed to the airport in the predawn darkness of Nov. 5 — just a few hours after the election of a Democratic President. Was Obama really going to chair a major strategy session the morning after winning the longest and most grueling campaign on record? How about a day off?

Long before Election Day, Obama decided that an ordinary transition wouldn’t do. Given the shaky economy and two wars, he knew that the winner of the election — whoever it turned out to be — would face instant and daunting challenges. He wanted to be ready. “What I was absolutely convinced of was that, whether it was me or John McCain, the next President-elect was going to have to move swiftly,” Obama recalls. He deployed Podesta in midsummer to lead an unusually elaborate preparation for a possible Obama presidency. McCain accused him of overconfidence and vanity, of measuring the Oval Office drapes. To Obama, it was simply a matter of prudence. (See pictures from the historic Election Day.)

Podesta had long been planning the return of a Democrat to the White House, and his think tank, the Center for American Progress, was already preparing detailed briefings on conditions in the various departments of government. As the financial system went into free fall in September, Podesta’s team pressed the FBI to work overtime on security screenings of potential Obama nominees. Now, as he boarded a 6 a.m. flight to Chicago, Podesta carried a list of more than 100 candidates who had passed their background investigations and were ready for confirmation on Day One. Instead of taking a day off, the new President-elect celebrated his victory with a five-hour meeting.

Obama had been pondering whether he should step to center stage or wait in the wings as the turbulent last months of the Bush Administration played out. His aides were all over the map. Some advised him to go quietly about his business in Chicago and insist that America has just one President at a time. For Obama to succeed, they argued, the country needed to see his Inauguration as a clean break, a new sunrise. Others floated the idea of immediately starting the First Hundred Days, perhaps asking George W. Bush to appoint Obama’s choices to key offices so that they could get to work by late November.

Obama was leery of appearing to shoulder responsibility for problems before he had any real authority to fix them. Bush’s bank of political capital was busted, and Obama wasn’t about to take ownership of the toxic assets. On the other hand, he didn’t want to repeat the dysfunctional transition of power from Herbert Hoover to Roosevelt in the dark hours of the Great Depression. F.D.R.’s silence between his election and his Inauguration may have deepened the crisis. By 5 p.m. on Nov. 5, when Podesta walked out of that meeting — not 24 hours after the polls closed — Obama was far ahead of the normal transition process, having homed in on finalists for many of his key staff and Cabinet positions. But he hadn’t yet decided how public to be about it.

Within two days, however, events forced his hand. On Friday, Nov. 7, Obama convened a meeting of his economic advisers in Chicago, and the tone of their comments was chilling. The stock market was plunging; credit remained tight; fresh unemployment numbers were shocking. “There was just a very dramatic deterioration” in the days after the election, says Timothy Geithner, Obama’s choice for Treasury Secretary. On previous occasions when the group had gathered, someone could always be counted on to find potential upsides in dismal forecasts, while Paul Volcker, the 81-year-old former chairman of the Federal Reserve, reliably closed each meeting with a gloomy soliloquy. On this day, though, there was no positive scenario for Volcker to deflate. Everyone in the room was grim.

See pictures of the global financial crisis.

See pictures of Obama’s nation of hope.

Obama opened the meeting by reflecting on his dilemma: act now or wait until January? By the end of the session, he had concluded that, like it or not, he must “accelerate all of our timetables,” as he put it, “in appointments not just on the Cabinet but also our White House team, in structuring economic plans so that we can start getting them to Congress and hopefully begin work — even before I’m sworn in — on some of our key priorities around the economy, on laying the groundwork for a national-security team that can take the baton in a wartime transition.” There was no time for the “traditional postelection holiday.” Vacations would have to wait until Christmas.

Transition is such a gentle word. We make the transition from youth to adulthood or from the dinner table to the den. For Obama, though, the concept was freighted with danger. “He was very focused on the basic perils of the gap between the election and the Inauguration, at a time when the economy was clearly deteriorating and the markets were very fragile,” Geithner explains. In certain powerful respects, Obama felt compelled to begin his presidency immediately. Markets needed to size up his economic team and hear what he planned to do. Congressional leaders, contemplating a colossal economic-stimulus package, needed to know where he was headed. Military leaders, key allies and opportunistic enemies were a