Saturday, August 18, 2007

Of Mitt, Monks, and Mowers

Published: August 18, 2007

Mitt Romney’s campaign has been trying to position him as the conservative alternative to Rudy Giuliani. They went searching desperately for examples of Rudy’s closet liberalism that do not involve things Mitt himself was doing until about five minutes ago. (Divorces will only take you so far.) They pounced on immigration, and, suddenly, New Yorkers discovered they are living in a “sanctuary city.”

Who knew? In fact, according to Romney, New York is “the poster child for sanctuary cities in this country.” A whole new self-image thrust upon us. It’s like discovering that someone entered you in a reality contest without your knowledge and that you have been chosen to compete in “So You Want to Be a Capuchin Monk!” this fall on Fox.

At issue is the fact that, like the city’s mayors before and after, Rudy Giuliani told New York police officers, hospital workers and school officials that it was not their job to check people’s immigration status. This is a perfectly rational position. If you’ve got hundreds of thousands of undocumented people living in your town, you want them to be willing to report crimes, to go to a doctor if they have a communicable disease, to keep their kids in school and off the street.

That makes your city — a sanctuary! “Sanctuary city” is the new “amnesty” — a right-wing buzzword aimed at freaking out the red state voters. There is, of course, the small side effect of making it utterly impossible to have a rational policy-making discussion about a critical national issue.

But what the heck. We’re talking Iowa.

“If you look at the Web sites of sanctuary cities, New York is at the top of the list,” Romney told an audience there last week, launching into a plan to punish said cities by cutting off their federal funding. Iowans live in an aging farm state with a static population of about 2.9 million. According to Census Department estimates, the number of foreign-born residents has risen by about 12,000 in the last five years. You’d think they’d be happy to see somebody moving in.

To be utterly accurate, New York City is not at the top of the list on “sanctuary city” Web sites, which tend to be alphabetized. We are middle-of-the-pack people, far, far below the “C” residents in Cambridge, Mass., whose city was near the top of the list when Romney was governor.

Cheap-shot break: Mitt Romney’s well-manicured suburban lawn was kept that way by illegal immigrants. The workers were hired through a local landscaping company. The Boston Globe tracked some of them down back in their native Guatemala, and they said they worked for $9 to $10 an hour and that Romney had never inquired about their legal status, reserving his interaction to an occasional “buenos días.”

I am only bringing this up because there seems to be a modern-day political rule under which people who hire illegal immigrants as nannies become ineligible for public service in any form, while those who hire illegal immigrants as lawn mowers and hedge trimmers get a free pass. I’m sure there is an excellent reason for this that has nothing to do with the fact that the nannies do work normally performed by women while mowing the lawn is a guy’s job.

When Romney was governor, his very, very short list of anti-illegal immigrant efforts included signing a bill giving state police officers the power to enforce federal immigration laws. The impact on undocumented residents of Massachusetts was reminiscent of Mitt’s famous drive to elect more Republicans to the State Legislature, which led to an increase in the number of Democrats. One of the Romneys’ illegal immigrant gardeners told The Globe that when the state policeman who parked in the governor’s driveway all day asked for his papers, he resolved the problem by promising to go get them and then not walking past the trooper’s car anymore.

There’s nothing wrong with being worried about the nation’s porous borders, violent criminals who manage to avoid deportation and the massive number of undocumented people living here without any ties to the community. We should have this discussion. Like it or not, we’ve got 14 months of presidential campaign to go. Nobody on the voter side wants to spend it listening to politicians shriek meaningless catchphrases.

By the way, doesn’t the term “sanctuary city” sound sort of nice, actually? Remember all those sci-fi movies where the heroes were stuck in a terrible world where everybody but them was a mutant or a pod person or a hologram and their only hope was to reach a legendary and possibly mythical refuge?

Next time you hear a politician ranting about a “sanctuary city,” say: “Wasn’t that where Keanu Reeves was trying to get in “The Matrix?”

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Fun and Games, and Hope

Published: August 18, 2007


I saw what probably was the biggest smile in the state of Massachusetts on Thursday, but I’ll get to that later.

The day started with a drive across an obscure two-lane bridge to an all-but-forgotten island in Boston Harbor. The city’s skyline glistened beyond the silvery expanse of water off to the left.

The mayor of Boston, Thomas Menino, was in the front seat of the S.U.V. I’ve been writing recently about kids trapped in urban combat zones where bullets are apt to fly at any moment and the residents in some neighborhoods are taking horrendous casualties. As we came off the bridge and passed through a wooded area, Mayor Menino promised that we were about to see the absolute antithesis of that kind of environment.

“You have to give kids hope and an alternative to the streets,” he said.

Mr. Menino’s alternative is a place called Camp Harbor View, a respite from city life that’s a 20-minute drive and light years away from Boston’s roughest neighborhoods.

The first thing you notice are the kids, hundreds of them in T-shirts and shorts engaged in a mind-boggling array of supervised activities: rope-climbing and soccer, baseball and basketball, swimming and hiking and fishing, dancing and singing and arts and crafts.

The grounds that the youngsters play on are pristine. A spotless beach slopes gently down to the harbor. The city shimmers on the other side of the water, like a mirage.

Harbor View is a day camp for kids 11 to 14 who are bused in each morning to an environment that is the closest some of them have come to nirvana.

“I didn’t know life could be like this,” said Nilza, a 12-year-old girl from Dorchester. “There’s no fighting ’cause that’s a rule here — not to fight.”

A boy standing beside her happily agreed.

“There’s no violence here,” he said. “And no trash on the ground.”

On the first day, the kids are issued backpacks, T-shirts, a couple of pairs of shorts, sneakers and other personal items.

The mayor said, “I can’t tell you how many of them ask, ‘Do we get to keep this?’ I tell them, ‘Yes. It’s yours.’ ”

The kids are given three meals a day, prepared by a first-rate catering company. Junk food is nowhere in sight. The camp experience lasts about a month, during which the kids are taught a variety of new skills and are encouraged to develop leadership traits.

The camp was Mayor Menino’s idea, but getting it going was a heavy lift. There was no money in the budget for such an initiative.

It took an extraordinary $10 million fund-raising effort by a retired advertising executive named Jack Connors, and an equally extraordinary construction effort by workers who at times pitched tents and slept on the island to get the camp ready for the kids by the start of this summer.

It hasn’t always been easy for the kids, either. A 14-year-old named Tyler has embraced the camp as a refuge from the violence in his South End neighborhood.

“Some of my friends have gone to jail already,” he said. “You know, for having guns and shooting. The people here aren’t like that.”

The mayor and camp officials told me later that some of Tyler’s friends have been harassing him, trying to persuade him to quit the camp.

“But he comes here every day,” Mr. Menino said.

Now there were voices raised behind us, and we turned to see a kid in a harness and helmet standing atop a pole about four stories high. The harness was attached to a network of ropes above the youngster, who was frightened.

He was supposed to jump and counselors controlling the ropes would guide him safely to the ground. But he couldn’t bring himself to do it.

Now a chorus of encouraging shouts went up. “You can do it! You’ll be fine! Jump!”

When the kid leaped from the pole, everybody cheered. He drifted toward the ground as though floating in a parachute and gently touched down. His smile lit up the afternoon.

Mayor Menino and the others responsible for Camp Harbor View haven’t remade the world. They’ve simply improved the environment, temporarily, for several hundred youngsters who deserved a break.

They’ve offered the kids a range of healthy activities and supervision. They’ve shown the kids that somebody cares about them. And they’ve tolerated no nonsense.

Mr. Menino’s grin, as we drove back over the two-lane bridge, was almost as wide as the smile on the kid who survived his four-story leap.

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Markets Quake, and a ‘Neutral’ Strategy Slips

Published: August 18, 2007

“We have to atone to our clients, but we have no right to whine for ourselves,” said Clifford Asness, the co-founder of AQR Capital Management, a money management firm that has been much in the news recently. “When we succeed, we make a boatload of money, we get imitators, and our risk increases. That’s how capitalism works.”

We were speaking on Thursday, a week after one of the lousiest market days of his life. Along with James Simons of Renaissance Technologies and David Shaw of D. E. Shaw, Mr. Asness is one of the leading practitioners of what is called quantitative investing, using computer models to buy and sell thousands of stocks (and bonds and derivatives and commodities and currencies and country indexes and just about anything else that can be traded). Mr. Simons, Mr. Shaw and Mr. Asness, in particular, use these quant models to run what are called in the business “market neutral” hedge funds, meaning that their gains (or losses) are not dependent on whether the market goes up or down.

AQR has about $37 billion under management, with $27 billion of that in plain vanilla equity funds. The rest is invested in its quant hedge funds, its best-known operations. Indeed, over the last seven years, AQR’s flagship hedge fund has been up, on average, 13.7 percent a year, after fees, handily outperforming the Standard &Poor’s 500, which gained only 1.9 percent annualized during that time.

Mr. Asness himself is known for being ridiculously smart, highly engaging, and funny, with more one-liners than Henny Youngman. I got to know him, and to like him, a few years ago, when I wrote about him for The New York Times Magazine. He can get a little full of himself, but most of the time he can be brought back to earth with a small, friendly jab. In other words, he’s the rare hedge fund manager you’d like to have a beer with.

Anyway, back to that awful Thursday. As you may recall, the market ended Aug. 9 down more than 380 points. That kind of day isn’t fun for anybody, but it was an especially brutal day for firms that are supposed to be indifferent to market ups and downs — namely, quant funds like those run by Mr. Asness and his partners. What made it especially painful is that their troubles on Thursday really had nothing to do with the market’s fall.

In the days leading up to Thursday, Mr. Asness’s fund — and most other quant funds — had gotten clobbered. When the AQR flagship fund opened for business on Friday, Aug. 10, it was down 13 percent for August. Mr. Simons’s famed Medallion fund, which has rarely had a down month during nearly two decades of incredible performance, lost 8.7 percent in early August. By mid-August, Goldman Sachs’s flagship Global Alpha fund was down 26 percent for the year. Everywhere you looked in the little town of Quantsville, it was ugly.

And then, in the blink of an eye, it turned around, at least for the moment. As of today, Mr. Asness’s fund had gained back half of what it lost in the previous two weeks, and was at break-even for the year. I hear through the grapevine that Mr. Simons has already made back every penny Medallion lost in early August. During its conference call earlier in the week, Goldman announced that it had rounded up $3 billion for one of its battered hedge funds; I’ll bet a steak dinner that that fund has seen some gains this week as well.

All of which poses some big questions: What really happened during the Great Quant Meltdown of early August? More to the point, should it scare us or reassure us?

Let’s be honest here. You hear the words “quant fund meltdown,” and one firm comes to mind: Long-Term Capital Management.

Back in 1998, that now infamous quant fund really did melt down, not only liquidating, but shaking the entire global financial system. Long-Term used complex computer models that failed to anticipate some severe once-in-a-lifetime market events, and it was shockingly leveraged — it was using $100 of borrowed money for every dollar of its own capital — which magnified its losses. It was also run by some of the smartest people on Wall Street. “When Geniuses Fail” was the apt title to Roger Lowenstein’s fine book about that fiasco.

Ever since, whenever quant funds stumble, it’s “When Geniuses Fail Redux.” Wall Street wags begin to wonder if those losses will lead to something truly cataclysmic, while newspaper reporters take a certain undisguised glee in reporting on really smart people losing money. Even now, there’s enough Luddite schadenfreude in the air that rumors continue to circulate that AQR is continuing to absorb substantial losses — which is the exact opposite of the truth, Mr. Asness says.

What is scary in this case is not that the quant funds were the initial source of a ripple effect on the rest of the market; they weren’t. The quant funds were the recipients of a ripple that began in a corner of the market that they had little to do with —namely, the subprime mortgage crisis. It’s the way the subprime contagion shook the quants, whose subsequent downturn then added to the ripple effect, that’s what is nervous-making.

Mr. Asness’s hedge fund offers a case in point. Does his fund deal with the subprime business? Not in any significant way. Rather, the securities that cost AQR so much money were good old-fashioned equities.

To oversimplify (sorry: you can’t explain this stuff without oversimplifying), AQR’s market neutral funds use computers to sort through a set of complex but common-sensical criteria to identify all sorts of assets — including stocks — that it believes are undervalued but gaining some momentum, which means that both price and fundamentals are improving. It buys, literally, thousands of those stocks. Then it seeks out stocks it believes are overvalued and starting to lose momentum. It shorts those stocks. What makes the fund “market neutral” is that it always tries to have the same amount long as short. Mr. Asness likes to say that it’s not really rocket science but intuitive investing; the computers mainly allow him to do it across thousands of stocks at the same time.

Mr. Asness does not suggest that he is going to be on the winning side of every trade. Not even close. Nor does Mr. Asness suggest that his strategy is risk-free. It’s not. “If you don’t take any risk, you won’t make any money,” he said. Even when things are going swimmingly, he’s going to have almost as many losing trades as winning ones. But over time the winning trades will add to better-than-average gains. In a down market, he hopes that his shorts will fall more than his longs, and in an up market, he wants the longs to rise more than the shorts.

As for risk, he adds leverage to bolster returns; indeed using borrowed money to calibrate risk is a major part of his strategy. But it’s not crazy stuff like Long-Term Capital Management, and it would be hard to argue with his results over time.

What happened in August is something that happens to every investor at times, even Warren E. Buffett: his strategy stopped working. So did Mr. Simons’s strategy and that of all the other quants. Mr. Asness’s trades weren’t just a little off — they were hugely off. The undervalued stocks he was buying were dropping steeply, but he wasn’t getting any help from the short side of his portfolio. Several “quants” I spoke to — market veterans who had been through the 1987 market crash and the 1998 Long-Term Capital disaster — told me they had never seen anything quite like it.

Why did it happen? In the immortal words of the market sage, James Grant, “On Wall Street, every good idea is driven into the ground like a tomato stake.” Quant investing, as practiced by the likes of Mr. Asness, Mr. Simons and others, has been enormously successful. And anything that’s successful on Wall Street is invariably going to be copied by others. That is exactly what’s happened in many cases at firms that did other things besides quant investing — like trading in derivatives built around subprime loans.

As these subprime instruments have cratered, investors have lost faith not just in them but in other credit derivatives. The holders of these securities had to meet margin calls and make other payments. So they had to start selling more liquid securities like, well, the kind of easily traded securities held in their quant equity portfolios, like Microsoft or I.B.M. or General Electric. And as they sold, other quant shops, like AQR, which held many of the same stocks, saw huge drops instead of small gains. Is it any wonder traders are calling this a contagion?

One line making the rounds on Wall Street is that the events of last week show that, just as with Long-Term Capital Management, the quants’ models didn’t work — that bloodless computers simply can’t anticipate events outside the norm. That line drives Mr. Asness bonkers. “In theory, what just happened is impossible, so if we stuck to the theory, we’d be dead,” he said. “We know this stuff happens.” Once they realized the magnitude, he and his partners quickly began a mild “deleveraging” to protect against even bigger losses. Eventually, AQR started buying cheap stock again — which had become even cheaper thanks to the short-term panic.

In the view of several big-time quants I spoke to, their big mistake was in not realizing that their little corner of Wall Street had become so crowded with imitators — and that when others were forced to sell, they were going to get hurt. Now they are all trying to figure out how to factor that into their thinking for the future — Mr. Asness very much included. “We have a new risk factor in our world,” he said.

So how should the rest of us feel about what just happened? Even though the worst seems to be over, I still think we should still be worried. But not because computer-driven quant funds took a tumble. That’s a symptom, not a cause. The larger issue is the contagion itself — the fact that something so out of left field, like subprime, could wind up hurting the quants.

Richard Bookstaber, a former quant manager, has recently written a book, called “A Demon of Our Own Design” (Wiley, 2007), which has become a small sensation on Wall Street. In it, he argues that the proliferation of complex financial products like derivatives, combined with use of leverage to bolster returns, will inevitably mean that there will be a regular stream of market contagions like the one we’re having now — one of which, someday, could be calamitous. To him, last week’s quant crisis is a classic case in point. “I think crises become inevitable when you have a financial structure like ours,” he said. “How deep or how frequent they are, I wouldn’t want to predict.” Well, who would?

So yes, it really is a scary world out there. But quants like Mr. Asness aren’t the reason.

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Beckham’s Gift for Glamour and Goals

Published: August 18, 2007

He was born with the gift. Even at 8 or 9, he could thump the ball harder and farther than his friends.

David Beckham’s weary eyes, already burdened with more time zones than he ever encountered in Europe, actually gleamed a bit yesterday when he recalled one ball he drilled as a tyke.

“I scored one from the halfway line,” he volunteered — and this does not seem to be a man who embellishes.

From 50 yards? At 8 or 9? Yes, Beckham nodded solemnly. This mysterious gift was just there, like the rifle arm of a born right fielder like Roberto Clemente or the slap shot of a born right wing like Mike Bossy.

The gift survives to this day, and an entire league is counting on the one individual skill that can produce a goal at any time. His talent produced the aura that had men chanting his name in Harlem yesterday during a youth clinic and tourists lining a Midtown lobby to catch a glimpse of him.

“A bit of glamour and glitz, some people like that,” he said unapologetically during a news conference.

Beckham’s club, the Los Angeles Galaxy, plays the Red Bulls in Giants Stadium this evening. Not many Major League Soccer matches come with this notice: Tickets are going fast, a tribute to Master Beckham.

He is being paid at least $32.5 million over five years, with up to $250 million in incentives. And in his first start for his new team the other night, he drilled one goal from an estimated 28 yards and laid out a perfect pass to set up another in a 2-0 victory against D.C. United.

Let’s be perfectly honest about this: despite the hard core of soccer buffs in America (more of us than one would think following European soccer via the Internet and cable TV), the sport will not grow easily in the United States. It needs some glamour, some glitz, and, oh yes, some goals. David Beckham, 32 years old, formerly of Manchester United and Real Madrid, husband of Posh Spice, is that rarest of players who can make a goal by himself once in a while.

Beckham’s coming to America is not like Babe Ruth’s advancing the home run past its rudimentary stage, but just the possibility of the occasional 30-yard free-kick goal is enough to float a league, give it a buzz, move jerseys, sell tickets.

The other night, the lad who boomed free kicks for the Ridgeway Rovers outside London at the age of 8 or 9 did it in his first start for his new team, after hobbling around for a month with a bad ankle. How many promises are kept that well? Did you ever like that 10-in-1 kitchen tool you bought off a late-night television commercial? Or a used car off a lot?

Beckham actually produced. His free kick in the 26th minute had Beckhamesque spin, swerving into the side netting, untouched by the only two human hands that mattered, those of D.C. United goalkeeper Troy Perkins.

Afterward, Perkins told reporters that he had come up with the amazing strategy of “cheating,” meaning he chose to move in one direction, hoping to guess right.

“I was in a bad spot and he caught me,” Perkins said, adding, “You get a player who can hit a ball to either side and you have to pick a side to make him beat you.”

Well, yes. Been going on for some time now. And Beckham could do it again. Free kicks are awarded in just about every match. Sometimes it is stunning how many players flub their chance into the mezzanine, but Beckham sometimes puts them into the netting. He’s also one of the more brilliant passers with a live ball.

M.L.S., however, is coming to grips with having to share Beckham with England whenever there are international dates on the calendar. On Wednesday, Beckham will be in London, where England plays Germany in what it is called “a friendly.” (“I’m not sure that any match with Germany is a friendly,” Beckham said.)

He had been cashiered off the national roster by the new coach, Steve McClaren, after the 2006 World Cup 13 months ago, but McClaren surveyed his roster and, to his credit, recalled Beckham, apparently not for a farewell tour, either.

Beckham hopes to play for England on Wednesday at the rebuilt Wembley, then fly to Los Angeles for a Galaxy match Thursday, putting him in the same intercontinental mode as the harried traveler in the old Arlo Guthrie song (“Coming in from London, From over the Pole,” although that song was not about soccer).

He never thought he would be recalled, but hopes to play at Euro 2008 next summer and still be in the mix for the 2010 World Cup. His life has turned even more complicated. The prodigy at 8 or 9 still has that gift.


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The Opinionator: A blog at the NY Times by Tobin Harshaw & Chris Suellentrop

“The subprime-mortgage-market meltdown is a classic example of the way small fry get devoured, but the whales of Wall Street get rescued,” writes Fortune senior editor-at-large Allan Sloan. He adds:

If you believe in markets — which I do — this rescue is especially galling, because Wall Street enabled this mess in the first place. How so? By happily sucking up hundreds of billions of dollars’ worth of suspect mortgages from marginal U.S. borrowers — and begging mortgage makers to create more of them. The Street sliced and diced this financial toxic waste into a variety of esoteric securities, making a nice markup when it sold them and generating a continuing stream of profits when it made markets in them.

Somehow analysts at credit-rating agencies, looking at computerized scenarios rather than at the real world, decided that the bulk of the securities backed by these trashy loans could be rated triple-A.

It’s really amazing: Most of the loans to substandard creditors borrowing 100 percent of the purchase price of homes they couldn’t afford were rated the same as GE and the federal government. That makes no sense. But the money rolled in, and Wall Street — by which I mean the world’s biggest and most important financial institutions — didn’t care about the real world or ask any questions. It was too busy making money, and cashing bonus checks generated by subprime-mortgage profits.

Sloan grants that we don’t want “the world’s financial system to implode,” so it’s a good thing that Federal Reserve chairman Ben Bernanke and the world’s other central bankers think some institutions are “to big to fail.” But Sloan wants those big institutions to pay a price for their bailouts:

I’d feel a lot better if the Street had to pay a serious price to its rescuers — say, having to fork over a big equity stake and pay a loan-shark interest rate. That way taxpayers, who are picking up the tab for the rescue, would get paid bigtime for taking on bigtime risk.

After all, that’s the Wall Street way.


An editorial in The Economist says the Federal Reserve and other central banks “must stand back” from intervening, through interest rate cuts, in the credit crisis that’s causing a panic in the world’s stock markets. The editorial concludes:

The retreat to a new level of risk was never going to be orderly or free of casualties. Neither should it be. Bankers and investors need to suffer precisely because the methods of modern finance have been found wanting. It sounds Darwinian, but the brutal demonstration that you pay for your sins is what leads the system to evolve. Markets learn from their mistakes. Only fear will spur investors to price risks better and get them to put more effort into monitoring their counterparties.

If these lessons are to sink in, central bankers must stand back — ­as, by and large, they have done. Every intervention now will be taken as a sign of what the regulators will do next time. If they bail out banks that have mispriced risk, the mispricing will continue. And when the central banks do step in, it should not be to save the financiers. The cost of intervention is warranted only to save the rest of the economy from the financiers’ folly. By that test, central banks were right to lend money to the banks in recent days, because it ensured that a liquidity crisis did not become a solvency crisis. They may yet have to take over a failed bank, though only if that is needed to stop a run. It is still far too soon to cut interest rates.

Because this crisis taps so deeply into the newly devised structures of finance, anyone who says the worst is definitely over is either a fool or someone with a position to protect. As risk has become bewilderingly dispersed, so too has information. Nobody yet knows who will bear what losses from mortgages — ­because nobody can be sure what those loans are really worth. Nobody knows if tighter lending standards will oblige borrowers to raise more capital, triggering more sales in stockmarkets and more pain. Nobody knows how messy the inevitable bankruptcies will turn out to be. What markets need now is time to piece that information back together.

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Friday, August 17, 2007

Workouts, Not Bailouts

Published: August 17, 2007

In April, Henry Paulson, the Treasury secretary, declared that all the signs he saw indicated that the housing market was “at or near the bottom.” Earlier this month he was still insisting that problems caused by the meltdown in the market for subprime mortgages were “largely contained.”

But the time for denial is past.

According to data released yesterday, both housing starts and applications for building permits have fallen to their lowest levels in a decade, showing that home construction is still in free fall. And if historical relationships are any guide, home prices are still way too high. The housing slump will probably be with us for years, not months.

Meanwhile, it’s becoming clear that the mortgage problem is anything but contained. For one thing, it’s not confined to subprime mortgages, which are loans to people who don’t satisfy the standard financial criteria. There are also growing problems in so-called Alt-A mortgages (don’t ask), which are another 20 percent of the mortgage market. Problems are starting to appear in prime loans, too — all of which is what you would expect given the depth of the housing slump.

Many on Wall Street are clamoring for a bailout — for Fannie Mae or the Federal Reserve or someone to step in and buy mortgage-backed securities from troubled hedge funds. But that would be like having the taxpayers bail out Enron or WorldCom when they went bust — it would be saving bad actors from the consequences of their misdeeds.

For it is becoming increasingly clear that the real-estate bubble of recent years, like the stock bubble of the late 1990s, both caused and was fed by widespread malfeasance. Rating agencies like Moody’s Investors Service, which get paid a lot of money for rating mortgage-backed securities, seem to have played a similar role to that played by complaisant accountants in the corporate scandals of a few years ago. In the ’90s, accountants certified dubious earning statements; in this decade, rating agencies declared dubious mortgage-backed securities to be highest-quality, AAA assets.

Yet our desire to avoid letting bad actors off the hook shouldn’t prevent us from doing the right thing, both morally and in economic terms, for borrowers who were victims of the bubble.

Most of the proposals I’ve seen for dealing with the problems of subprime borrowers are of the locking-the-barn-door-after-the-horse-is-gone variety: they would curb abusive lending practices — which would have been very useful three years ago — but they wouldn’t help much now. What we need at this point is a policy to deal with the consequences of the housing bust.

Consider a borrower who can’t meet his or her mortgage payments and is facing foreclosure. In the past, as Gretchen Morgenson recently pointed out in The Times, the bank that made the loan would often have been willing to offer a workout, modifying the loan’s terms to make it affordable, because what the borrower was able to pay would be worth more to the bank than its incurring the costs of foreclosure and trying to resell the home. That would have been especially likely in the face of a depressed housing market.

Today, however, the mortgage broker who made the loan is usually, as Ms. Morgenson says, “the first link in a financial merry-go-round.” The mortgage was bundled with others and sold to investment banks, who in turn sliced and diced the claims to produce artificial assets that Moody’s or Standard & Poor’s were willing to classify as AAA. And the result is that there’s nobody to deal with.

This looks to me like a clear case for government intervention: there’s a serious market failure, and fixing that failure could greatly help thousands, maybe hundreds of thousands, of Americans. The federal government shouldn’t be providing bailouts, but it should be helping to arrange workouts.

And we’ve done this sort of thing before — for third-world countries, not for U.S. citizens. The Latin American debt crisis of the 1980s was brought to an end by so-called Brady deals, in which creditors were corralled into reducing the countries’ debt burdens to manageable levels. Both the debtors, who escaped the shadow of default, and the creditors, who got most of their money, benefited.

The mechanics of a domestic version would need a lot of work, from lawyers as well as financial experts. My guess is that it would involve federal agencies buying mortgages — not the securities conjured up from these mortgages, but the original loans — at a steep discount, then renegotiating the terms. But I’m happy to listen to better ideas.

The point, however, is that doing nothing isn’t the only alternative to letting the parties who got us into this mess off the hook. Say no to bailouts — but let’s help borrowers work things out.

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The Ascent of a Common Man

Published: August 17, 2007

Pocahontas, Iowa

Every presidential candidate tells a certain sort of story. Some talk about being part of a great movement. Some talk about surviving an ordeal with a band of brothers. John Edwards’s stories begin with family, continue with work and solitary struggle and conclude with triumph over privilege.

He may begin, for example, by describing an incident from his boyhood. He came down from his room one morning before dawn. The house was dark, except for the blue glow of the TV. He found his father in front of the television, watching educational programming on PBS so he could get promoted at the mill.

Edwards clawed his way to college but felt like a hick and an outsider. Everybody seemed smarter. But gradually he realized they had just grown up with social and cultural advantages, and he could still outwork them.

The tales culminate with his great underdog victories. He defeated the insurance companies in the courtroom. “I beat them,” he says, “And I beat them again!” He got rich. He now has a chance to turn around and help those who grew up the way he did.

I came out to Iowa having read that Edwards had swung left this election campaign. He was going to outflank Clinton and Obama among liberals and then sweep his way to the nomination.

But out here it’s clear that the Edwards campaign is based on the same conviction that organized his last campaign: no one understands regular people the way he does. No one else can get out of a bus in places like Pocahontas, Iowa, and bond with the farmers, nurses and hairstylists the way he can. No one else comes from their ranks the way he does.

The theory of the Edwards campaign is that Obama will fade because of his inexperience, and Democrats in Iowa will be left with a choice about electability. Which of their candidates is going to be able to connect with working-class white voters in Ohio, Virginia, Nevada and Michigan? Ultimately, Iowans won’t make the same mistake they made in 2004. This time they’ll choose him.

And so Edwards tirelessly tours this must-win state, delivering presentations that have three major elements, all of them rooted in his working-class roots. First, there is his cultural traditionalism. Edwards will be talking about an issue, and his voice will rise and he’ll punctuate his argument with a ringing declaration of stern common sense. On education: “Parents can’t just drop their kids off at school and forget about it. Parents have to take responsibility for their children!” On immigration: “They have to learn English!”

Second, Edwards exudes a deep distrust of Washington that can sound almost Reaganesque. “Nothing is going to change if we replace one group of Washington insiders for another group of Washington insiders,” he declares.

And third, there is his belief, which is in tension with his distrust of Washington, that the federal government should be there for those who work hard. He is brimming with government programs — to create public-sector jobs, to provide health insurance, to shift capital to rural America.

If you had to put a label on Edwards, you’d say that he is a culturally conservative anti-Washington liberal.

All this cohered in January 2004, with his “Two Americas” speech, the best stump speech of the last decade. It was a tight, single-themed argument, weaving the story of his personal rise with a call to heal the rifts that divide the nation.

This time, Edwards is not as exciting a campaigner. But he is more substantive. He seems to have concluded that eloquence alone can’t make him presidential. So he talks less about himself and mixes his bromides with wonkery. His answers on everything from China to ethanol are filled with complex, multipart arguments. He passes on opportunities to be demagogic.

At the moment, he is being overshadowed by the two rock stars in the race. But his connection to voters is real. And so ultimately the question about Edwards will be what it has always been: Is there depth there?

In a 45-minute conversation, I found him vague about subjects like social mobility and globalization, in a way that Clinton and Obama would not be. Yet beneath the pretty-boy exterior, there is something fierce lurking inside. It comes out in his resentment toward those born to privilege (which helped sour his relationship with John Kerry). And it drives him relentlessly upward, even in the face of illness and tragedy.

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Floyd Norris: Notions on High and Low Finance

With Markets Moving Wildly, Insight Suffers

Published: August 17, 2007

Twenty-first-century financial markets react with lightning speed to events halfway around the world. Investors in China can immediately see what happened in New York and make trades in London based on the news.

So why is the credit panic of 2007 being played out in slow motion?

One reason is that those involved have never seen anything like this before. Information may arrive instantly, but insight takes longer.

It seemed unlikely, if not absurd, that the American economy and credit system could be shaken because a few people with poor credit fell behind on their mortgages. Why should that slow consumer spending? Why should it affect companies that made mortgage loans only to people with good credit? Why should it bring a halt to the leveraged buyout boom?

Perhaps none of those things should happen. But fears that they may take place have sent the stock market on a wild ride over the last month, culminating yesterday with the Dow Jones industrial average falling more than 300 points before gaining nearly all of them back in the final hour of trading, amid speculation that the Federal Reserve would find a way to keep troubled financial companies from failing. Not long ago — four weeks, to be exact — Larry A. Goldstone, the president of Thornburg Mortgage, a real estate investment trust, was feeling good. He had seen the subprime mortgage disaster unfold, and believed it was good for his company.

“The current credit crisis is the market environment today,” he said in a conference call on July 20, as the stock rose above $27. “The liquidity issues in the marketplace are creating a very, very nice opportunity for us. This is not a big surprise to us.”

The way he saw it, the crisis was shaking out his competitors, the ones who had made those imprudent loans. With them gone, he could make more money.

Within days, he bought 10,000 shares. The chairman and chief executive, Garrett Thornburg, invested almost $13 million in company stock. Four other insiders, including the chief financial officer, were also buyers.

But last week, things got dicey. Thornburg Mortgage owned a lot of AAA-rated mortgage securities, and had borrowed up to 95 percent of their value. Now the lenders, suspecting the securities were worth less, wanted more cash. To get it, Thornburg had to sell securities, and few wanted to buy. Suddenly the commercial paper market, so willing to lend to Thornburg at small margins just weeks before, was not interested in lending even at much higher rates.

As for the share price, it went into a free fall on Tuesday, amid rumors that the company could not meet its obligation. Trading was halted with the stock under $8. On Tuesday night, it conceded it was having trouble raising money to finance mortgages. It said the dividend it had promised to pay on Wednesday would be delayed by a month.

But it insisted that it was not bankrupt. Even marking down the value of its assets to current market value, it said, it was worth $14.28 a share on Monday, down from $19.38 at the end of June.

That provided some reassurance, and since then the shares have climbed back above $12.

Thornburg has prospered until now with a fairly simple formula. Organized as a REIT, it paid big dividends representing all of its taxable income. It grew by issuing more shares, which it could sell at prices above its book value because individual investors valued the high yield. The shares wound up in a lot of retirement accounts, and the fact that people paid more than book value enabled the book value per share to grow.

The insiders profited hugely from that. The company gets away with not disclosing how much the bosses are paid because it is managed by a separate company owned by some of the bosses. That management company gets incentive fees based on the company’s total book value and profits, a formula that would seem familiar to a hedge fund manager. Effectively, the bosses get a cut every time the company sells new stock, and keep getting cuts from those sales every year.

Now Thornburg, like many other companies, needs a quick unfreezing of the credit markets. But even if they get it — if the Fed tells banks to rescue them with emergency loans — many may find that they cannot safely operate with such high leverage. And without the leverage, profits will be harder to make even if Thornburg can charge more for mortgage loans.

The unfortunate series of events that got us here — remember the proverb in which a kingdom is lost for want of a nail — began with a weakening housing market. That caused some mortgages to go into default, which raised questions about the value of mortgage securities and the credibility of the ratings that enabled the securities to be sold.

That led to the questioning of other types of loans that had been financed by selling packages of securities that were structures in similar ways to ones that had financed the mortgages. It became more difficult for companies to borrow. Now it seems to be spilling over to the real economy, with consumers getting nervous.

“We are going through a psychological event,” Mr. Goldstone said. “It has everybody in a panic. There is nothing fundamental here.”

He may be wrong about that last part. There may not have been a fundamental change in the health of his business, but such a change is taking place in the credit markets. There, buyers with available cash are few, and many of them are in no hurry to buy when so many need to sell.

It is sort of like a game of musical chairs in which the music stops and it turns out that all the chairs have vanished.

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A Good Deed Is Rewarded, With a Catch

Published: August 17, 2007

Brooke Astor, whose 105 years will be celebrated at her funeral today, donated a fair chunk of change to the New York Public Library. That gave her something in common with Ruth Cooper Jacobs, practically a kid by comparison at 98. Ms. Jacobs also sends money to the library, pretty much every year.

Granted, as a philanthropist she is not exactly in Mrs. Astor’s league (but then, as she says, she hasn’t had the same sort of, um, issues with her son that Mrs. Astor had). Her contribution is to buy a couple of tickets in the library’s annual fund-raising raffle.

The “dream raffle,” as it is called, offers more than 200 prizes — stuff like flat-screen televisions, digital cameras and gift certificates. This year, it raised $287,105, which can buy a bunch of Harry Potter books and leave enough to pay a few salaries.

As in years past, Ms. Jacobs, a retired public-school teacher and guidance counselor, bought two raffle tickets, for $10. She does the same with other organizations, she said, especially groups concerned with cancer and Alzheimer’s disease.

“I don’t expect anything from any of them,” she said the other day in her Upper West Side apartment. “I didn’t expect anything from the library. I was more than surprised that I’d won first prize.”

That she did. A few weeks ago, she learned that she had won an eight-day river cruise for two in Europe. Between now and next July, she can sail the Rhine or the Danube — her choice, and not a bad one, most would agree.

Ms. Jacobs, whose husband died in 1998, figured it would be nice to travel with her daughter, Louisa Craddock, who works for the Department of City Planning. But she had to say aye or nay rather quickly. And that’s when the trouble started.

The riverboat has no elevator, and the cabin being offered is on the lower deck. The restaurant and lounge are on the upper deck. “I Googled the boat,” Ms. Craddock said. “The minute we saw pictures, we all groaned.” Her mother would have to walk up and down stairs several times a day. Those 98-year-old legs couldn’t take it.

To look at Ms. Jacobs, you might guess she is in her mid-80s. Mentally, she is sharp as can be (crediting her regular bridge game with helping to keep her alert). But the legs are not what they were. “Let me put it this way,” she said. “When I step off the bus, I have to sort of wait a couple of seconds until I’m stable.” Her cane is indispensable.

She asked if there was an alternative prize, or if she might transfer the cruise to, say, Ms. Craddock and her husband. Not a chance, she was told. Reluctantly, Ms. Jacobs said she would have to decline her prize.

But hold on. Maybe there was another way to go at this. The boat turned out to have an upper-deck cabin that is handicapped accessible.

The catch, though, is that this cabin would be offered to her only if not sold to a paying customer. Its availability would be uncertain at least until 90 days before the boat sets sail. Long before then, Ms. Jacobs would have to accept the prize and, with it, taxes she would owe, estimated at $2,500. That means committing now to a gift — and a tax obligation — that in the end might prove untenable.

“In other words, I’m taking $2,500 and gambling with it,” Ms. Jacobs said. The gamble did not seem worth it to her.

Hold on again.

“We really want her to take the cruise,” said Anthony Calnek, the library’s vice president for communications and marketing, who couldn’t resist adding in this week of Brooke Astor’s death that “we’re feeling particularly loving toward older women.” The library agreed to pick up the tax tab should Ms. Jacobs discover belatedly that she could not make the trip.

Mind you, neither Ms. Jacobs nor Ms. Craddock pretends that this matter looms terribly large in a world filled with mayhem. Both agreed that people at the library had been most sympathetic.

Still, there is an issue, Ms. Craddock said. It is the wisdom, even fairness, of offering a prize that is not truly possible for everyone. “There’s a whole group of people that can’t use it from the get-go, no matter what,” she said.

What her mother will decide remains unclear. But one thing is evident: This is a city where even a good thing comes with complications.

You know, Ms. Craddock said, “I think Mom would have settled for dinner for two in a very good restaurant.”

“That,” her mother agreed, “would have been very nice.”


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Sheffield Motivates Himself With Conflict and Criticism


Published: August 17, 2007

Gary Sheffield prides himself on being an avowed truth-teller, a revealer of hypocrisy, a debunker of myth, but typically without ample explanation or factual support.

He fancies himself a slugger making grand social statements for the benefit of ballplayerkind but often via a personal agenda. If the chip on his shoulder had a face, it could pass for Barry Bonds’s inflated head.

When he is finished with his flurry of reverberating wails, he can also go acoustic, as he did briefly in the visitors’ clubhouse at Yankee Stadium yesterday, saying, “I don’t take myself too seriously.”

Which poses the question, why should we?

With the Tigers, the seventh team of his impressive 20-year major league career, Sheffield returned to the Bronx for the first time since making the stinging assessment that Joe Torre has a harsher managerial style for black players. In an interview last month on HBO’s “Real Sports,” Sheffield insisted he was not calling Torre a racist. Just saying, in effect, that he acts like one.

“I meant what I said, said what I said and I stand by what I said,” he said yesterday before being lustily booed throughout the Tigers’ 8-5 victory.

Based on his three-year experience here, which ended last fall, Sheffield claimed that black players were more likely to be “called out” by Torre. When asked about Derek Jeter, who has almost a father-son relationship with Torre, Sheffield said that Jeter is a Yankee icon and, as the son of a mixed-race couple, “ain’t all the way black.”

Insulting to Jeter as that may be, his racial makeup does raise an interesting and tangentially relevant point. If, as Sheffield suggests, Jeter counts as half-black, the Yankees right now have half the number of African-American players they did when Elston Howard integrated the franchise in 1955, or eight long years after Jackie Robinson crashed the major league color line.

Of course, they have many Hispanic players, a couple of whom helped win championships for Torre (in all likelihood the truest measure of the manager’s affection). Why African-American participation in baseball is dwindling while Latino players multiply is another subject for debate that Sheffield weighed in on contentiously this season. He told GQ magazine that baseball favors Hispanics because they are easier to control (big news, no doubt, to Manny Ramírez and Pedro Martínez).

But in the HBO interview, Sheffield made little distinction between players of color, and nor did he offer a clear summation of his reckless insinuation, except to say: “I think it’s a, a way of, the way they do things there, you know. They run their ship differently.”

Fascinating how, in that unscripted moment, it became “they,” the Yankees, not Torre. And here we do come upon a subject at least worth discussing, a nugget of truth uncovered inside Sheffield’s unfiltered doublespeak. He has been around baseball long enough to know that the Yankees, under George Steinbrenner’s ownership, have not been much more an agent for social change than they were in 1950.

Bob Watson, an African-American, came from outside the family for a two-year run as general manager that included the first of Torre’s four World Series victories in 1996. Reggie Jackson hangs around with the ambiguous title of special adviser. Beyond that, the Yankees’ front office has largely been a reflection of the past.

They have not had a manager of color. Until Torre, African-American players with deep organizational roots or others with post-playing aspirations watched a platoon of white colleagues play an ongoing game of musical managerial chairs.

When Torre was forced to the sideline in 1999 for prostate-cancer treatment, Steinbrenner begged a gimpy, cranky Don Zimmer to fill in rather than appoint Chris Chambliss, who had managed successfully in the minors, or Willie Randolph, whose qualifications at the time were at least as clear as those of the presumed manager-in-waiting, Don Mattingly.

If the Yankees’ social practices are not a symbolic representation of the game’s, whose are? So is it possible that Sheffield — an edgy but by most accounts likable teammate — has a deep-seated anger over the diminishing African-American influence after so many decades of struggle?

He has always seemed to motivate himself through conflict (like John McEnroe, as one Yankees insider sagely confided last night). In that sense, who was more likely to become a target of frustration after Sheffield’s injury-plagued 2006 season, and the handing of his job to Bobby Abreu?

The principal owner, Steinbrenner, who personally signed Sheffield in the hometown (Tampa) they share, or the manager, Torre, who reportedly (and understandably) preferred Vladimir Guerrero back in ancient times, 2004, and whom Sheffield had to deal with every day?

Sometimes, the price for outspokenness is being called out. Pride, in this case, would seem to be what’s keeping the avowed truth-teller from admitting what it is.


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The Opinionator: A blog at the NY Times by Tobin Harshaw & Chris Suellentrop

  • How did Dick Cheney go from being a steady-but-boring vice-presidential nominee to an insane-but-fascinating vice president? Ross Douthat wonders:

    The odd thing, of course, is that Cheney entered this Administration with a reputation for being anti-charismatic but deeply responsible, but if anything the reverse has proven true: When he’s ventured out of the undisclosed location, he’s actually been a much more compelling spokesman for the Administration than the President, even as he’s been associated with many of its more reckless and tone-deaf policy decisions.

  • The New Republic’s Jason Zengerle thinks Hillary Clinton’s “divisiveness is, sometimes, a problem of her own making.”

  • Didn’t Rich Hall call these “sniglets”? Reason contributing editor Julian Sanchez invents the word “outsight” at his blog, Notes From the Lounge:

    A group of people are standing around discussing some topic where either expertise or native intelligence make them all pretty conversant on the subject. Suddenly, one person pipes up with what he clearly thinks is a profound insight, an important observation. The others smile awkwardly, perhaps exchanging quick meaningful looks, and attempt to steer the conversation elsewhere. In the most embarrassing cases, the person who offered the observation is convinced that the full import of his insight can’t have been understood, and insists upon pressing it again and again. What’s actually happened, though, is that the person has outed himself as desperately behind the curve by offering the very opposite of an insight: some utterly elementary point that everyone else had taken for granted as a premise of the conversation, and indeed, one too obvious to be worth stating among (so they had thought) other reasonably bright and informed people. It’s an odd case of making oneself look bad, not by saying something wrong or false, but by saying something too clearly true.


A Republican recession? If the mortgage crisis leads to a recession, it could be “the whammy of political death” for the eventual Republican nominee for president, suggests James Pethokoukis, the assistant managing editor for the Money & Business section at U.S. News & World Report, at his Capital Commerce blog. Pethokoukis writes:

It’s terrible luck for Republican candidates in 2008 that just as the Iraq war seems to be ever so slightly turning for the better, the economy seems to be taking a turn for the worse, thanks to the spreading mortgage credit crisis. The former might not be decisive enough to save the party in 2008, while the latter might be just damaging enough to do it in for sure.

The nearly six-year Bush boom — “the greatest story never told,” according to economist and CNBC host Larry Kudlow­has been a tangible accomplishment that the G.O.P. candidates, including the party’s eventual White House hopeful, could have trumpeted next year. It has a nice, understandable narrative, too. Faced with an imploding Internet stock bubble and corporate scandals, Bush slashed taxes in 2001 and 2003 and helped restart America’s amazing growth machine.

But a recession between now and Election Day 2008 ­along with accompanying job and income losses, falling home values, and a dodgy stock market­ could be the whammy of political death. As it is, the online betting market Intrade gives the Democrats a 57 percent chance of winning the White House. (It also gives a 31 percent chance of a recession next year.)

Steven Stark, the presidential campaign columnist for The Boston Phoenix, thinks the grueling debate schedule is “slowly destroying the candidacies of John Edwards and Barack Obama — much to the delight of Hillary Clinton supporters.” Stark adds:

The very fact that more debates are on the calendar will likely skew the results of the race. If there had been this kind of debate schedule in 1976 or 1972, Jimmy Carter and George McGovern —­ two anti-establishment candidates who eschewed sound bites —­ would never have won their party’s nominations. (On second thought, perhaps that’s the point.)

Obviously, debates benefit well-spoken, presentable candidates who can express themselves well in a minute or less — ­ one reason Mitt Romney and Hillary have done well so far. (Obama’s tendency to generalize and philosophize is charming on the trail, not so much in a debate setting.)

Less obvious is the fact that exposure in these forums institutionalizes the leads of front-runners in the polls. That is one reason why, in this era of frequent primary debates, early front-runners tend to do better than they did from 1960 through 1988.

Stark’s conclusion: “Obama and Edwards would be well served to drop out of the debates now and take their case to the people. Otherwise, come January, they may find that the things that once made them distinctive no longer exist.”

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Thursday, August 16, 2007

Two Steps in One Go

Published: August 15, 2007


A brief document called "Two Steps in One Go" that attempts to fast-forward Palestinian statehood has landed on the desks that matter in the Middle East and is arousing considerable interest.

Written by Terje Roed-Larsen, a senior United Nations official immersed in the region for decades, the proposal envisages the creation of a Palestinian state with provisional borders followed by state-to-state negotiations on final-status issues using principles agreed before Palestine's establishment.

Israelis and Palestinians might agree, for example, on the principle that the borders of Palestine would be those of 1967 adjustable by territorial swaps involving 5 percent of the land. These swaps would be the object of subsequent state-to-state talks.

"Palestinians are fed up with gradualism and don't believe it works," Roed-Larsen, a Norwegian who heads the New York-based International Peace Academy, told me. "Israelis are saying they don't trust the Palestinians enough to go to final-status talks. So we need something between the gradual and the total."

His timing is good in a region that looks bad. Iran's rise has not yet led worried Sunni Arab governments to embrace Israel publicly, but it has caused a radical reassessment in which the Palestinian-Israeli conflict often looks like an irksome real-estate dispute while Tehran looks like the real threat. Some gulf states and Israel are talking quietly.

Of the four interlocking Middle Eastern issues - the Iraq war, Iran resurgent, the Syrian-Lebanese tangle and Israel-Palestine - Roed-Larsen believes that "right now the latter is the easiest, because the others have no blueprint."

That is a startling view, but I think he is right. This does not mean, of course, that the 59-year conflict has slithered from its self-perpetuating gyre. What it does mean is that this is not the time to focus on ensuring cement moves unimpeded between Hebron and Nablus. It is time to push for the finish line.

Among those who have seen Roed-Larsen's two-page document are Mahmoud Abbas, the Palestinian president; Haim Ramon, an Israeli deputy prime minister; Tzipi Livni, the Israeli foreign minister; King Abdullah of Jordan; Condoleezza Rice, the U.S. Secretary of State; and Hosni Mubarak, the Egyptian president, with whom Roed-Larsen met this week.

The proposal, presented in a private capacity, suggests that "the United States would play the leading role as the facilitator" and coordinate with "the international quartet and the Arab quartet." The former includes the European Union, Russia and the United Nations as well as the United States; the latter comprises Egypt, Saudi Arabia, Jordan and the United Arab Emirates.

In practice, the idea is that the parties could make significant headway using these ideas before the Israeli-Palestinian peace conference the Bush Administration plans to hold in November.

Saudi Arabia has indicated it might attend the conference, but only on condition that it deals with "the substance of peace." Roed-Larsen's proposal seems to address this concern. To bring Saudis and Israelis to the same public table would be a breakthrough.

Roed-Larsen said, "The Bush administration is incredibly interested in achieving agreement on the establishment of a Palestinian state before it leaves office." That would mean some time in 2008.

The possibility seems remote. The Israeli government is weak. The Palestinian movement is divided between the Islamic militants of Hamas in Gaza and Abbas' secular Fatah in the West Bank. Iraqi mayhem and Iranian ascendancy are prodding the region toward radicalism.

Iran and Syria know how much moral ammunition they would lose with any Israeli-Palestinian settlement and may well have the means, through various surrogates, to blast any possible deal out the water.

But the fall of Gaza to Hamas has focused Israeli minds on the urgency of progress. Abbas is furious at the hijacking of the Palestinian national cause by jihadist radicals; he wants answers. Any Middle Eastern victory for President George W. Bush will not occur in Iraq. Tony Blair did not take on the role of peacemaker to sun himself by the Dead Sea.

"All the principles should go as far as possible and then you do the nitty-gritty after statehood," Roed-Larsen said. Such principles could include the notion of Jerusalem as a two-state capital and a just settlement for Palestinian refugees.

In practice, these two sharpest of thorns would have to be blunted together: the Palestinians get their capital in some part of East Jerusalem against a compromise on the right of return. But that gets resolved, simultaneously, state to state.

An opportunity exists; Roed-Larsen's suggested process is valuable. For peace to follow, the political courage in Washington, Jerusalem, Ramallah, Cairo and Riyadh will have to trump the zealotry in Tehran and Damascus.


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Must Be the Season of the Fred

Published: August 16, 2007

August. Everybody but you is out of town. Congress is in recess. The Iraqi Parliament, of course, is long gone. You-know-who is in Texas. It’s 107 degrees in Crawford, but that brush wants cutting.

Karl Rove is going on hiatus forever. The president of France, Nicolas Sarkozy, has been summering in Wolfeboro, N.H., enjoying the scenery and yelling at photographers. Wolfeboro is something of a hangout for famous politicians — Mitt Romney has a vacation house there, and Rudy Giuliani was there just the other day, buying coffee heath yogurt. He also gave his most basic stump speech, which involves announcing that “Americans don’t lose” and making repeated references to Ronald Reagan.

The only problem with campaigning for the New Hampshire primary in a tourist spot is that your audience is generally not from New Hampshire. “I’m a fan; we like him out in Indiana,” said Betty King, who got Giuliani’s autograph. “I hope he can get us out of the war.”

“... Or win the war,” she added quickly, perhaps remembering that Americans don’t lose.

Meanwhile in Iowa, the vacation capital of ... Iowa, everyone is waiting for Fred.

Fred Thompson is coming! Now Republicans won’t have to feel shortchanged because Tommy Thompson dropped out of the race, leaving them with only eight candidates to choose from. (Oh Tommy, we hardly knew ye.) The networks will not even have to change the name cards at the debates.

Now let us be clear, Fred Thompson is not a candidate yet. True, he has a Web site and he raised almost $3.5 million last month and he is scheduled to be in Iowa Friday to meet with state legislators and go to the state fair. But nothing is official. And who wouldn’t like to spend the hottest weeks in August chatting up state legislators and fighting with the crowds at a very large fair in a state where they do not reside?

His Web site isn’t even called “Fred Thompson for President.” Its name is “I’m With Fred,” which is noncommittal, yet has a nice ring. “I’m with Fred” sounds like something you would say while desperately trying to get past the bouncer and into an exclusive club restricted to cool people who want to give money to a former senator from Tennessee.

Right now Thompson occupies that lovely sweet spot reserved for candidates about whom the public knows nothing whatsoever except that they couldn’t be any worse than the other ones. We love these guys. (Remember how much you loved Ross Perot until you actually got to know Ross Perot?) Thompson is doing very nicely in the polls already; campaigning could ruin everything.

And it’s August for heaven’s sake. We should be proud to live in a country where voters do not judge their politicians by race, ethnicity or whether they’re prepared to run around Iowa in 100 degree temperatures shaking hands and dropping in on the Polly Bukta Corn Boil. (We see you, Hillary Clinton.)

Still, if Thompson is introducing himself to the Iowans tomorrow, we all deserve a little peep at the merchandise. Otherwise we might get jealous and move our state’s primary to Columbus Day.

What does Fred Thompson stand for?

Exactly what George Bush stands for, except that Thompson intends to be as dogmatic and inflexible on illegal immigrants as Bush already is on other domestic issues, making real change on immigration as impossible as it currently is on health care, tax reform or Social Security. By coincidence, Romney and Giuliani have arrived at this very same position.

While Thompson has said virtually nothing about Iraq, he will probably follow the Mitt-Rudy line and drop hints that when he invades a country, he will bring a bigger army.

Does Fred Thompson have enough experience to be president?

He spent eight years in the Senate, and “I’m With Fred” has a list of his accomplishments. Many of them contain the fatal words “served on,” “fought to,” and “worked to enact” which are often legislative synonyms for “was in the room when ...”

He was a successful lobbyist and if it is pointed out that he represented causes he now decries, Thompson seems prepared to argue that it doesn’t count if somebody pays you to do it. He has also been a great success playing versions of himself in movies and on TV. He’s appeared on 115 episodes of Law and Order, one of which is rerunning at this very minute on a cable channel near you.

What is the worst thing about Fred Thompson?

If elected, he would be the tallest president ever. I’m not really sure we want to give up on Abraham Lincoln.

What is the best thing about Fred Thompson?

Many people believe he’s rather lazy. Given the main Republican candidates’ current positions, we might want to consider rooting for the one likely to make the least effort.

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The Big Melt

Published: August 16, 2007

If we learned that Al Qaeda was secretly developing a new terrorist technique that could disrupt water supplies around the globe, force tens of millions from their homes and potentially endanger our entire planet, we would be aroused into a frenzy and deploy every possible asset to neutralize the threat.

Yet that is precisely the threat that we’re creating ourselves, with our greenhouse gases. While there is still much uncertainty about the severity of the consequences, a series of new studies indicate that we’re cooking our favorite planet more quickly than experts had expected.

The newly published studies haven’t received much attention, because they’re not in English but in Scientese and hence drier than the Sahara Desert. But they suggest that ice is melting and our seas are rising more quickly than most experts had anticipated.

The latest source of alarm is the news, as reported by my Times colleague Andrew Revkin, that sea ice in the northern polar region just set a new low — and it still has another month of melting ahead of it. At this rate, the “permanent” north polar ice cap may disappear entirely in our lifetimes.

In case you missed the May edition of “Geophysical Research Letters,” an article by five scientists has the backdrop. They analyze the extent of Arctic sea ice each summer since 1953. The computer models anticipated a loss of ice of 2.5 percent per decade, but the actual loss was 7.8 percent per decade — three times greater.

The article notes that the extent of summer ice melting is 30 years ahead of where the models predict.

Three other recent reports underscore that climate change seems to be occurring more quickly than computer models had anticipated:

Science magazine reported in March that Antarctica and Greenland are both losing ice overall, about 125 billion metric tons a year between the two of them — and the amount has accelerated over the last decade. To put that in context, the West Antarctic Ice Sheet (the most unstable part of the frosty cloak over the southernmost continent) and Greenland together hold enough ice to raise global sea levels by 40 feet or so, although they would take hundreds of years to melt. We hope.

In January, Science reported that actual rises in sea level in recent years followed the uppermost limit of the range predicted by computer models of climate change — meaning that past studies had understated the rise. As a result, the study found that the sea is likely to rise higher than most previous forecasts — to between 50 centimeters and 1.4 meters by the year 2100 (and then continuing from there).

Science Express, the online edition of Science, reported last month that the world’s several hundred thousand glaciers and small ice caps are thinning more quickly than people realized. “At the very least, our projections indicate that future sea-level rise maybe larger than anticipated,” the article declared.

What does all this mean?

“Over and over again, we’re finding that models correctly predict the patterns of change but understate their magnitude,” notes Jay Gulledge, a senior scientist at the Pew Center on Global Climate Change.

This may all sound abstract, but climate change apparently is already causing crop failures in Africa. In countries like Burundi, you can hold children who are starving and dying because of weather changes that many experts believe are driven by our carbon emissions.

There are practical steps we can take to curb carbon emissions, and I’ll talk about them in a forthcoming column. But the tragedy is that the U.S. has become a big part of the problem.

“Not only is the U.S. not leading on climate change, we’re holding others back,” said Jessica Bailey, who works on climate issues for the Rockefeller Brothers Fund. “We’re inhibiting progress on climate change globally.”

I ran into Al Gore at a climate/energy conference this month, and he vibrates with passion about this issue — recognizing that we should confront mortal threats even when they don’t emanate from Al Qaeda.

“We are now treating the Earth’s atmosphere as an open sewer,” he said, and (perhaps because my teenage son was beside me) he encouraged young people to engage in peaceful protests to block major new carbon sources.

“I can’t understand why there aren’t rings of young people blocking bulldozers,” Mr. Gore said, “and preventing them from constructing coal-fired power plants.”

Critics scoff that the scientific debate is continuing, that the consequences are uncertain — and they’re right. There is natural variability and lots of uncertainty, especially about the magnitude and timing of climate change.

In the same way, terror experts aren’t sure about the magnitude and timing of Al Qaeda’s next strike. But it would be myopic to shrug that because there’s uncertainty about the risks, we shouldn’t act vigorously to confront them — yet that’s our national policy toward climate change, and it’s a disgrace.

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"The Big Melt" >>

The Opinionator: A blog at the NY Times by Tobin Harshaw & Chris Suellentrop

Is Hillary Clinton Slytherin’s heir? Mark Kleiman, a U.C.L.A. public policy professor who writes at the academic group blog The Reality-Based Community, says Clinton’s campaign is “Rove’s disciple” for its attacks on Barack Obama.

“The Clinton campaign, both the candidate and the surrogates, have been going after Barack Obama hard and personally,” Kleiman writes. “He’s ‘naive” and ‘irresponsible,’ too inexperienced to trust as Commander in Chief.”

Now the Clinton campaign is “accusing Obama of ‘attack politics’ ” for his counterstrike. Kleiman objects, “The lie, and the projection, are transparent. But that’s not to say that those tactics won’t work. After all, they elected George W. Bush, didn’t they?”

In the Democratic field, Kleiman says, “it’s not hard to figure out which campaign carries the DNA of Karl Rove.”

On the other hand, David Frum wrote on The Times op-ed page on Tuesday that “much of the Democratic party, and especially its activist netroots, has decided that the way to beat Rove Republicanism is by emulating it.” If the Democratic base admires Rove, then criticisms like Kleiman’s might make Democratic partisans like Senator Clinton more, not less.


Foreign Affairs has published Rudy Giuliani’s foreign policy manifesto, “Toward a Realistic Peace.” (The magazine has published similar essays by Barack Obama, Mitt Romney, and John Edwards, with more to come from “the top U.S. presidential candidates.”)

Conservative blogger James Joyner, writing at Outside the Beltway, calls Giuliani’s essay “dangerously stupid”: “It is not particularly realistic — let alone Realist — and certainly does not contemplate peace.” He adds, “Indeed, it seems he intentionally picked out the worst parts of the foreign policies of George W. Bush, Bill Clinton, and Jimmy Carter.” Joyner, a onetime Giuliani fan, also writes:

For a time, Giuliani was my favorite of the 2008 candidates. He’s got serious executive experience, is a charismatic leader, and sufficiently moderate on the social issues that I thought he had the chance to put together a 60 percent coalition to break the polarization that has so poisoned American politics in recent years. While I disagree with him on abortion and some other issues, I was able to put that aside for a variety of practical reasons.

Unfortunately, the more I learn about Giuliani, the less I like him. His chief advantage, the sense that he’s a grown-up who will take a pragmatic but aggressive role in fighting the Islamist terrorists, is undermined by his unserious pandering.

The alarm first sounded for me with his politically astute but disingenuous attack on Ron Paul for his suggestion that al Qaeda hates our foreign policy, not just our freedom. I chalked that up to the necessities of politics rather than a lack of understanding of the most important national security issue of our time. The more I hear and read, though, the more I think Giuliani is either a charlatan or a simpleton. Either he’s lying to us and we therefore have no idea what his foreign policy will be or, worse, this is what he really thinks. Either way, it’s not good.

Writing in The Financial Times, former Clinton strategist James Carville analyzes Karl Rove’s career: “There is no doubt that Mr Rove won elections. He has perhaps one of the most remarkable win-percentages in modern American politics.” At the same time, however, “He has lost an entire generation for the Republican party,” Carville writes. He continues:

A late July poll for Democracy Corps, a non-profit polling company, shows that a generic Democratic presidential candidate now wins voters under 30 years old by 32 percentage points. The Republican lead among younger white non-college-educated men, who supported President George W. Bush by a margin of 19 percentage points three years ago, has shrunk to 2 percentage points. Ideological divisions between the Republican party and young voters are growing. Young voters generally favour larger government providing more services, 68 per cent to 28 percent. On every issue, from the budget to national security, young voters responded overwhelmingly that Democrats would do a better job in government.

Democracy Corps is more than “a non-profit polling company”: Carville co-founded Democracy Corps in 1999 with Stanley Greenberg and Bob Shrum.

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"The Opinionator: A blog at the NY Times by Tobin Harshaw & Chris Suellentrop" >>