Though hawkish Benjamin Netanyahu came in second in Israel's last elections, he was tapped by Israel's president to form a new government. With his coalition now in place, he is off and running. But where is he running to? Netanyahu is no newcomer to Israeli
politics. He has even been prime minister before, at a rather pivotal point in history. He led the government from 1996 to 1999 when a Jewish extremist assassinated Yitzhak Rabin for signing a peace agreement with the Palestinians.

Many see Netanyahu as culpable in the collapse of the Oslo Peace Accords, since he had rejected them from the outset. Some even found Netanyahu culpable in Rabin's death by inciting public fears that the peace process left Israel at risk. This time around, post-Oslo, he is making history again by joining forces with another Israeli party leader who did well in Israel's latest elections, Moldova-born Avigdor Lieberman, Israel's David Duke.

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I keep harping on the administration's clear signals to the Israeli government to stop playing games and get back to negotiations.

Unfortunately, I don't think the Israelis "get" Obama or take him seriously although Obama surely "gets" Netanyahu,

If he needs a primer on Bibi, he can just ask his Secretary of State or her husband. As I've written before, the last time Netanyahu became Prime Minister I was at an event (this was in 1997) where I corralled President Clinton, and told him (as if he needed my advice) that he has to expect Bibi to do everything he can to stonewall the peace process.

I chewed his hear off for a minute or two. Then he smiled, put his arm around my shoulder, and said, "Bibi? You don't know the half of it, my friend."

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The memos about torture released by the Obama administration are horrifying to read. Nothing new, here, but they are like a punch in the stomach all over again. This is my country? This is the nation that stands for freedom and decency?

I understand why President Obama doesn't want to prosecute those who believed they were acting under laws written by the Office of Legal Counsel. But that is not the only policy he and other Democrats can pursue.

First, the men who wrote those memos should be investigated for disbarment. They acted in ways that are unconscionable and unprofessional, to put it mildly.

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The signs all point in one direction. President Obama is breaking with his predecessors' policies on Israel-Palestine.

The latest evidence is his decision to submit legislation that would allow US assistance to the Palestinians even if Fatah and Hamas form a unity government. Under current law, any power sharing agreement would terminate US aid.

This change, if implemented, makes it more likely that a power sharing arrangement will be reached. And that is good news because the two-state solution requires that there be one Palestinian entity, not two. The two-state solution is tricky enough. Three states? Forget about it.

Let's see what Congress does with Obama's request. Will the Democrats follow Obama or back the Netanyahu government which is already lobbying against the Obama language?

Meanwhile, the Times of London expects an Israeli attack on Iran at any time. I don't believe it. Too utterly insane.

The posts by Jamie Galbraith and Liaquat Ahamed together make a very strong case for a drastically downsized financial sector; as Mr Ahamed put it: "however we got here the eventual goal should be a financial system that is tightly regulated, boring and safe." Not surprisingly, this was the conclusion reached by the majority of participants at the Levy Economics Institute annual conference in the honor of the late Hyman Minsky, held at the Ford Foundation last week.

However, nothing but bad news continues to dribble out of Washington. For example, here is a recent headline: "Fannie Mae CEO Allison Nominated to Run TARP Office". As a former (successful) regulator put it, Mr. Allison's most recent accomplish was the destruction of Merrill Lynch "through nonprime CDOs -- Merrill actually kept many of the toxic CDOs it originated in its portfolio. The fact that he was brought into Fannie with regulatory blessing is the conclusive proof of why we need a new regulatory head for that agency. The fact that the administration is selecting him, after a track record of failure, to run TARP 2 is simply a continuation of the conclusive proof of that obscenity."

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I don't generally overreact to news (from the NYT this morning, on the AIG-Goldman connection that runs through Edward Liddy's stock ownership), but this has gone far enough.

Have we completely lost of sense of what is and is not a conflict of interest? Have we really built a system in which greed fully overshadows responsibility? Is it not time for a complete rethink of what constitutes acceptable executive behavior?

One of our country's leading corporate attorneys made a telling point to me on Wednesday night, "the only way to control executive behavior is to criminalize it," i.e., civil penalties do not change behavior - the prospect of jail time has to be on the table. His broader point was that antitrust action can make a difference in today's world, but only if this includes potential criminal charges.

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There is a great deal of posturing in the press recently about the new Afghan law applying to Shiite's that legalizes marital rape.

President Karzai, who relies on vast support from the United States and other Western governments to stay in power, has come under intense international criticism for signing the bill into law.

The brave Afghan women who marched yesterday to protest the law deserve our moral support, but before we get too morally comfortable in condemning the "10th Century" practices of Muslims we should remember that until 1993 marital rape was legal in North Carolina.

Until the late 1970's, most states did not consider spousal rape a crime. Typically, spouses were exempted from the sexual assault laws. For example, until 1993 North Carolina law stated that "a person may not be prosecuted under this article if the victim is the person's legal spouse at the time of the commission of the alleged rape or sexual offense unless the parties are living separate and apart."

If you don't think that domestic violence on women is not still a huge issue in the United States you are on planet Mars.

Physician heal thyself.

Shimon Shiffer, the Yedioth Achronoth correspondent and one of Israel's top journalists, is reporting today that Rahm Emanuel told a top Jewish organizational figure that President Obama intends to see a Palestinian state created during his first term.

"In the next four years there is going to be a permanent status arrangement between Israel and the Palestinians on the basis of two states for two peoples, and it doesn't matter to us at all who is prime minister," Shiffer quotes Emanuel as saying.

More details here including the President's decision to be "out of town" when Netanyahu comes to Washington for the AIPAC conference.

I'll try to find a link in English. So far, the story is only in Hebrew.

A common theme in much of the discussion so far is that the current crisis originated with a financial system that was completely out of control--too large, too risky, with massive liquidity mismatches between assets and liabilities. In another setting I described it as a sort of financial Frankenstein.

There are different explanations of how we got here. Some see it as simple policy mistake of taking deregulation too far. Others attribute it to the malign influence of free market ideology misapplied to financial markets which are unusually prone to market failures. Others point to the political power of Wall Street and the financial elites. I am persuaded that all played a part. Most discussants seem to agree that however we got here the eventual goal should be a financial system that is tightly regulated, boring and safe.

To get from here to there is the challenge. Even a boring and safe financial system needs capital.

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Please excuse the late intervention. I stayed up last night to finish Lords of Finance and should say first that I recommend it.

This is not a polemical book and it is also not primarily a work of economics, though there is a huge amount of economic history in it. It is first of all the social history of a small, important and largely forgotten group: the central bankers of the early 20th century, in the four countries whose finances, empires and ambitions dominated the globe. No question that the cover image is well-chosen.

At this time the central bank was just beginning to be merged into the nation-state. So one thing that stands out is the extent to which the central banks retained their private character, structures of governance and class allegiances, except in Germany where the war had changed everything. This is not to say that the lords of finance were dishonorable or venal or dumb. It rather points to the limitations of government by people raised in very small clubs.

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There is little doubt that the world faces the worst economic crisis since the 1930s, with a few economists and policymakers beginning to talk about the possibility of a depression. References to Keynesian economics are commonplace, with only committed free marketeers arguing against government intervention. Even the wizards on Wall Street are begging for re-regulation of financial markets. The Obama administration has projected current year federal budget deficits at $1.75 trillion (12% of GDP) and $1.17 trillion for 2010--although some private forecasters project $1.9 trillion for 2009, representing 13.5% GDP, and it is not likely that it will fall next year.

If anything, prospects facing the rest of the world are worse. The Fed has become the global lender of last resort, providing up to $600 billion in loans of dollar reserves to foreign central banks. Further, it is widely understood that the bail-out of US financial institutions (most prominently, of AIG) helps to protect foreign financial institutions (AIG is the biggest supplier of CDS "insurance" for debt held by European banks). Still, the run to relative safety in US treasuries has threatened exchange rates and increased risk spreads around the world. Social and political unrest is spreading around the periphery nations. Many economies will not recover until the US does. While I believe that the US has at its disposal ample policy space to resolve its crisis, many other nations do not. Mark Thoma has called for international coordination--a good idea, but one that I fear has little political support. Euroland will not expand its economy out of fear that markets will run out of its government's debts. And I think they would--since the Euro is not a sovereign currency for any individual Euronation.

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Long before the election, I wrote that the future control of the Republican Party would end up in the hands of the extreme rightwing Limbaugh Brownshirts. But last week the Department of Homeland Security issued a report questioning whether right wing extremism is moving towards a more dangerous Oklahoma City Bombing situation.

(U) Exploiting Economic Downturn

(U//FOUO) Rightwing extremist chatter on the Internet continues to focus on the economy, the perceived loss of U.S. jobs in the manufacturing and construction sectors, and home foreclosures. Anti-Semitic extremists attribute these losses to a deliberate conspiracy conducted by a cabal of Jewish "financial elites." These "accusatory" tactics are employed to draw new recruits into rightwing extremist groups and further radicalize those already subscribing to extremist beliefs. DHS/I&A assesses this trend is likely to accelerate if the economy is perceived to worsen.

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The second question at the end of Ahamed's introductory essay asks if we are at a point similar to the 1930s when an absence of global economic leadership made the Great Depression much worse:

Charles Kindleberger ... attributed the 1929 collapse to a failure of global economic leadership. In his view a well functioning world economy required some country to act as the leader, in effect to do more than its fair share ... recognizing that smaller countries will freeload off its efforts... But the leaders of the U.S. were too parochial and insular to seize the opportunity. ...

Has the US been so weakened by its accumulated current account deficits, its banking debacle and its foreign policy disasters that it is incapable of bearing more than its fair share of the burden?

As I noted here, I think we are in a situation where we were more than big enough to break the U,S. and world economies, but are not big enough to fix the problem on our own - particularly after absorbing the costs of financial collapse onto our domestic balance sheets. However, while crisis has made it clear that we cannot fix the world economy by ourselves, I don't think the crisis is the fundamental reason for this, the distribution of world economic growth in recent decades would have led to this outcome with or without the crisis.

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Terrific piece by Roane Carey, Managing Editor of THE NATION in ALTERNET, reprinted from Tom's Dispatch.

Carey, who is spending a half year teaching in Israel, has no doubts that Israel plans to attack Iran unless President Obama lays down the law with Netanyahu.

Carey writes that Israelis operate under the assumption that without total military superiority over all other regional powers, it is doomed. They believe that Iran is quite willing to see itself destroyed to take Israel down with it. Crazy stuff. But this kind of apocalyptic thinking could lead Israel to hit Iran.

The results, according to Carey, would be disastrous.

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What is remarkable in Ahamed's book are both the parallels and contrasts of the 1920s to the past decade. The most obvious parallel is the amazing ability of smart people to collectively believe such dumb things-- and inflict pain on others justified by those wrong beliefs.

In the 1920s it was the Gold Standard-- the firm faith that price consistency between nations must be maintained at all costs. What is striking is how much the costs of deflation and joblessness imposed by it was understood; as is described on p. 161, Britain in 1920 very consciously went back on the gold standard and "two million men were thrown out of work" and, note a decade before the Great Depression, mass unemployment would persist for the next two decades. Some like Keynes identified the madness but most "smart" people thought such the gold standards and its costs the height of sanity.

Just as "securitization" and deregulation were the obvious financial orthodoxy in recent years, with groups condemning "predatory lending" and demanding more financial regulation treated as cranks.

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Though Liaquat Ahamed's book focuses on individuals, it is really about the economic and ideological orthodoxies that drove them in a particular period. Even the best and brightest in the world of finance often could not see beyond a certain set of assumptions. He focuses on Benjamin Strong of the Federal Reserve Bank of New York, Emile Moreau of the Banque de France, Hjalmar Schact of the Reichsbank and Montagu Norman of the Bank of England.

The well-written history explores how all of these individuals insisted that the gold standard was essential to economic stability at a time that was not the best course of action. Their world view caused them to take and to promote monetary actions that destroyed their economies, and severely impacted German wartime reparations .

It is easy to see how a comparable book may soon be written about the individuals who shaped the political economy during the 1990s, the glory days of globalization and free market economics, when individuals such as Lawrence Summers and Robert Rubin ruled the day and could not seem to do any wrong in Washington. There were vigorous debates between Republicans and Democrats in the 1990s, just as there were in the 1920s, but these debates were contained with certain parameters. Now politicians are living with the effects of the economy they created, and many Americans will be paying the price for their decisions for decades to come.

I've always been amused by Lockheed Martin's marketing slogan "We never forget who we're working for". For most of the last 30 years since Reagan began the great defense buildup, the people they "were working for" were clearly Lockheed shareholders. On a split adjusted basis, the stock went from $10 in 1980 to $120 in August of 2008, just before Obama was nominated. Despite repeated attempts by various Defense Secretaries, Lockheed always managed to put it's shareholder's needs above those of the Country and keep the F-22 gravy train moving.

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I like to focus on instances where free speech is suppressed on Middle East issues because the absence of free debate affects policy and perpetuates the status quo. . Here is a story about Clark University's decision to cancel a speech by Norman Finkelstein, the author and lecturer on Mideast issues and the Holocaust. It is all too typical.

To be honest, I would never invite Finkelstein to speak anywhere. During the 2006 Lebanon war, he was a cheerleader for Hezbollah. He is not antiwar but rather anti-Israel. Whoever is fighting the Israeli army has his unabashed support.

Here is the most nauseating Finkelstein moment. He's chiding a Lebanese journalist for not being willing to fight to the death against Israel. Here he is leading a Hezbollah rally at the UN.

I can't stand the guy. But I think he has the right to be heard on campus.

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The book, and post, by Liaquat Ahamed, The Lessons of the Great Depression, provide a nice antidote to much nonsense promulgated by the right wing. The Great Depression was not caused by stupid Fed tricks, nor was it extended by stupid New Deal programs. It was - rather - the predicted result of the normal operation of a small government, Laissez-faire economy constrained by a gold standard. And, yes, it was predicted - by the greatest social scientist produced by America (and the greatest economist who ever spent time at the University of Chicago), Thorstein Veblen, in (among other trenchant analyses) "Sabotage" in 1919, the story of the coming great depression manufactured by oligopoly capital. Liaquat rightly notes the constraints placed on US policy-makers when they attempted to deal with the crisis. The references to blood-letting are apt, a practice that continued long after abandonment of the gold standard and Bretton Woods, which rendered such medieval medicine wholly anachronistic. The World Bank, IMF, and Washington continued to prescribe blood-sucking remedies until the US and developed world plunged back into another Great Depression last year, at which time they (re)discovered the benefits of Keynesian "big government" policy. Last weekend, I participated in a conference at the University of Chicago on the current financial crisis, where I found the last remaining blood-sucking Neanderthals pushing for "free" market solutions to this disaster.

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At the end of his introductory essay, Liaquat Ahamed asks two questions. One is:

...has the structure of the economy changed so much ... that the traditional instruments of policy we thought we could rely on to jumpstart the economy will no longer work?

New approaches are required, but it's not so much the nature of the economy that has changed, it's that we forgot or never fully learned the lessons of the Great Depression.

One of the lessons of the Great Depression should have been that the financial authorities need to monitor and regulate excessive build-ups of systemic risk. In addition, once a crash occurs and fear is one of the main factors that is causing markets to freeze up, financial authorities need to know how to quickly reduce risk - they need some means of removing the questionable assets from the market place - and this must be done in a politically palatable, least cost manner.

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Israel's preeminent Syria expert, Moshe Ma'oz, famously dubbed that country's former leader Hafaz al-Assad "the Sphinx of Damascus" in his political biography of that title, an inscrutable man, impossible to decipher. Almost ten years into office, his son and successor Bashar al-Assad has yet to have collected too many nick-names but his ambassador to Washington, Imad Moustapha, was anything but sphinx-like in openly embracing the peace process and setting forth a challenge to both the new Israeli and America governments on Fareed Zakaria's GPS show yesterday. Zakaria's hour of thoughtful policy discourse on CNN has become for me one of the few things worth watching on a Sunday.

Ambassador Moustapha surprised many yesterday and made headlines in Israel when he countered Fareed Zakaria's skepticism that progress on peace would be possible given the new Likud-Lieberman government in Jerusalem by suggesting that, "It's better to deal with someone like Lieberman than someone like Livni - Lieberman is candid and says what he believes," which he contrasted to Livni and colleagues talking peace while making war, notably in Gaza. This is an interesting position to take not least from a senior Syrian representative and contrasts to what many others in the Arab world have been arguing - it also seems to me more realistic and constructive especially given the lead peacemaking role that Moustapha penciled in for the Obama administration. Perhaps even subconsciously, Syria seems to be sending the message - you want to make peace, deal with the bad guys, whichever side they are on (and that might as much be a self-reflective comment as it is a critique of Israel's new leadership).

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Big announcement made today via White House Spokesman Robert Gibbs and National Security Council Latin America Director Dan Restrepo on the new parameters of America's "Cuba Policy."

So. . .let's get the easy part of this comment out of the way.

Applause, applause, applause. . .for a decent set of humanitarian gestures in the US-Cuba relationship that don't actually make things worse. Obama and his team have moved us in the right direction -- and moving in the right direction on Cuba is something that rarely happens when Presidents and their advisers look at electoral maps and get nervous about South Florida. So, bravo for a bit of good news.

The Obama administration today lifted restrictions on travel and remittances for Cuban-Americans and eased restrictions on US telecommunications firms entering into network agreements with Cuban telecom firms in a broad range of communications services as well as easing restrictions on humanitarian donations to Cubans.

Only problem with today's announcement -- beyond the very friendly nudge about Dan Restrepo's impressive Castilian accent that may not play too well to many in the Cuban-American community -- is that it is not "a lot of good news."

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I would like to thank TPM Café for hosting this discussion.

Lords of Finance is intended to be a popular narrative history about the causes of the Great Depression. I chose to tell the story by looking over the shoulders as it were of the four major central bankers of the period, Montagu Norman of the Bank of England, Benjamin Strong of the New York Fed, Hjalmar Schacht of the Reichsbank and Emile Moreau of the Banque de France. It was a way of turning the spotlight on key economic decision makers of the era, thus highlighting that the Great Depression was caused by a series of policy mistakes, especially by central bankers. Moreover by telling the story through individual biographies, I thought it would make the book more accessible to more people.

The economic story that underlies Lords of Finance is an eclectic one. The book emphasizes three broad factors behind the Great Depression. First was the gigantic overhang of international debts after the First World War, the result of the failure of statesmanship at the Paris Peace Conference of 1919. German reparations and European war debts left massive fault-lines in the world financial system, which cracked at the first pressure.

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Liaquat Ahamed joins us this week at Book Club for a discussion of Lords of Finance: The Bankers Who Broke The World. An economic history of the liquidity crisis from 1914 through the Great Depression, Ahamed focuses on four central bankers and their larger-than-life personalities: Montagu Norman of the Bank of England, Emile Moreau of Banque de France, Hjalmar Schacht of Reichsbank, and Benjamin Strong of the Federal Reserve Bank of New York. Lords of Finance details the four men's attempts to return the economy to the gold standard - and how a series of bad decisions brought the four major banks (and their respective economies) to the brink of collapse.

Ahamed's work is particularly relevant today - in a TPMTV interview last month, he compared the current regulatory environment to the one in place during the 1920s and 1930s.

Joining the discussion are James Galbraith, Lloyd M. Bentsen Jr. Chair in Government/Business Relations and Professor of Government at the University of Texas at Austin; Sidney Blumenthal, former aide to President Clinton and Senior Fellow for the New York University Center on Law and Security; Julian Zelizer, Professor of History and Public Affairs at Princeton University; Randall Wray, Professor of Economics at the University of Missouri-Kansas City; Mark Thoma, Professor of Economics at the University of Oregon; and Nathan Newman, Policy Director for the Progressive Legislative Action Network.

John Bogle, founder of the Vanguard Group has always been a beacon of sanity in a financial business filled with coke sniffing Masters of the Universe. Vanguard offers Index funds with very low fee structures that stand in stark contrast to the "2 and 20" fees (2% of assets under management and 20% of the profits) of the hedge fund barons. When I hear so many blog posters griping about the conspiracy of Wall Street insiders to rip us off, I think of Bogle's constant mantra--"you own these companies, why are you such a passive investor?"

"When I read the causes of the recent unpleasantness, I haven't seen one single person who has said that the owners of these corporations, including the banking corporations, didn't seem to give a damn about how they were being run," Mr. Bogle said in an interview last week. "We own all this stock but we pretty much do nothing."

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"If things are so bad, why don't you just leave?" No matter how often you hear such things, they always sting--in part, of course, because there are enemies and scoffers you don't mean to comfort--but more deeply because unusually detailed criticisms imply an unusually vivid idea of how things might have been; they occur, typically, to people who have had their lives changed by moments of revelation and romance, when things that seemed painfully contradictory seemed reconciled--when something like "identity" took shape. To be asked why you don't leave feels like being disinherited.

This is a round about way of saying why Jim Carroll has been as much an inspiration as a friend for nearly 30 years, and why I so resent the odd review of his new book, Practicing Catholic, in today's Times. More than anyone I know, Jim has criticized the church out of a relentless desire to live out what he knew it could be; to hold dear its history, grandeur and gifts, and yet finally move it beyond the grotesque infallibility of its clerical hierarchy. The reviewer of his book, Jack Miles, a good man and a fine writer in his own right, is asking Jim why, in view of all his criticisms, he remains a Catholic. As if Jim has not asked his friends to answer this very question, letting loose a self-deprecating laugh, every time he asks them to read a manuscript. As if asking this is not like asking someone on page 879 of a Russian novel why he intends to finish it.

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