2010: AMEN In Washington, There Will Be Blood

The forecast for 2010.



As a young political junkie and wannabe wordsmith, one of my favorite year-end traditions was reading William Safire's "Office Pool" column in The New York Times with his predictions for the year ahead. No one did smart and tart like the legendary language maven and pundit, who inspired countless scribes and speechwriters (like myself) during his 40 years in public life before passing away in September. So to pay tribute to Safire's hefty legacy, I thought I would revive his prognostication ritual here (and consistent with the name of my column, risk making a fool of myself).

A quick side note: I originally planned to offer my 2010 forecast next week and to write a standard political year in review column for today. But 2009 was such a miserable slog, with infinitely more embarrassing than ennobling moments in Washington, that I soon realized that I had nothing much constructive to add. So I figured I would do everyone a favor, dispense with the pundit equivalent of spinach eating and skip straight to the dessert. With that, here are my most Safire-ean predictions for the year to come.

There Will Be Blood (White House Edition): In the cable TV and Internet eras, staff shakeups have become the norm for the first two years of a new presidency. Some top advisors get ground down by the grueling demands of the job, others screw up and become liabilities to the president and others show they are just mismatched for their roles. Expect the Obama White House, which has been put under enormous strain by the economy/Afghanistan double whammy and has suffered (as I have noted before) from having too many political hacks in the president's inner circle, to be no different. The question is not if but when--and who will come in to help Obama regain his mojo.

Obama is well known for taking the long view. But his patience has limits, and he can be ruthless with staff when he needs to be--witness the Corleone-ish disposal of White House Counsel Greg Craig, the first high-level casualty. My sense is that there will be a few minor departures in the first half of 2010 but that the president will wait until after the mid-terms to make any major changes. One likely scenario: The Democratic majorities in Congress shrink dramatically in November, Obama decides he needs to lower the partisan temperature and the president replaces hard-charging Chief of Staff Rahm Emanuel with someone better positioned to cut deals with Republicans (in the mold of Tom Daschle).

Cabinet Unmaking: The safest bet I will make here is which Cabinet secretary will be the first to go, long a favorite Washington guessing game. Treasury Secretary Tim Geithner was the early conventional choice after his shaky debut and the mounting resentment toward him in Congress and on the left. But, justified or not, he seems to have maintained the full confidence of the president. I suspect the same can't be said of Department of Homeland Security Secretary Janet Napolitano, who badly embarrassed the administration with her Brownie-esque performance this weekend, and I predict she will be pushed out in the next couple months after the current furor recedes.

Napolitano compiled an impressive record as a smart, tough governor in Arizona, and on paper she seemed a great fit for the DHS job. But her short tenure has been marred by a series of public gaffes--starting with her tone-deaf response to a report her staff prepared on homegrown terrorism that clumsily slurred conservatives and culminating in her jaw-dropping assertion that the "system worked" in foiling the Christmas day terror attack over Detroit--that have badly undermined confidence in her judgment and steadiness. That's a no-go in this key terror-fighting job, which demands a reassuring presence, and why Napolitano will be the first must-go from the Cabinet.

There Will Be Blood (House Edition): Congressional Democrats know they are in trouble, and their whole strategy for 2010 will be to do what they can to minimize their losses in the mid-terms. That's why the House leadership will cave quickly to the Senate in the negotiations on the health care bill, to clear the decks for action on jobs as soon as possible. But my reading of the polling suggests those efforts will be futile. There is an unstoppable wave of anti-incumbent, anti-bailout anger coming that will take out many if not most of the first- and second-term House Democrats who rode the Bush backlash to steal GOP-leaning districts--and put Nancy Pelosi's current 40-seat majority in real jeopardy.

My bet: Assuming there is not a serious drop in the jobless rate, the House Dems lose somewhere between 30 seats and the 54 seats that they lost in 1994 to put Newt Gingrich in power. But far more interesting to me is what happens to Pelosi after the blood is let. So far her caucus has been mostly blind to what a giant liability she has become; her approval ratings now rival Gingrich's at his low point during the infamous government shutdown in 1995. Will the moderating forces get religion after they get creamed at the polls? There will be remote rumblings of a coup among the smaller pack of Blue Dogs, but the Speaker's loyal liberal allies will succeed in quashing it. That's in large part because with Rahm-bo gone, there is no clear-cut, confidence-regaining successor.

Harry-Kari in the Senate: I suspect the Senate Democrats' losses will be less severe, between three and five, mostly because the numbers and matchups generally favor them. But one of the few Democratic victims will be Majority Leader Harry Reid, who outside of Chris Dodd has the worst reelect numbers of any Democratic incumbent up in 2010. Reid's wounds have mostly been self-inflicted: He has been dogged by a series of intemperate remarks in Washington and integrity-denting scandals in Nevada. Yet his coup de grace with his constituents may be his finest hour of legislative leadership: pushing through the Democrats' health care holy grail without a vote to spare.

Assuming Reid does become the second Democratic majority leader in a row to lose his seat, the Senate Dems will be forced to have the leadership tussle that their House counterparts will foolishly duck. Reid's current No. 2, Dick Durbin of Illinois, will have a strong claim to the post, serving as a solid, well-liked lieutenant and having a hometown hotline to the White House. But Durbin is a stock liberal, not exactly the right profile to steer the caucus after a big government blowout, and is almost as unpersuasive on television as Reid. Expect a fierce and ultimately winning challenge from New York's Chuck Schumer, who is regarded as a much savvier strategist and more effective public spokesman for the caucus.

The Huntsman Returns: Most 2012 presidential bird-dogging will focus on the two top establishment candidates (Tim Pawlenty and Mitt Romney) and the rogue regime in waiting (Sarah Palin). But don't count out the popular former Utah governor Jon Huntsman yet. Team Obama may have thought they were taking a formidable rival off the board by picking the broadly appealing, Mandarin-speaking Huntsman to be their ambassador to China. And Huntsman may have calculated Obama was probably not beatable in 2012 when he accepted the job early this year. But circumstances have changed just a bit now that Obama's approval ratings have dipped below 50%.

My bet: Huntsman resigns his post in the summer, frees himself up to campaign for GOP candidates in the fall, then forms an exploratory committee by year's end. He'll start out behind, and he'll have to deal with the baggage of being tied to Obama. But Huntsman, who worked in the Reagan White House and helped lead his family's global chemical company, brings a lot of comparative advantages to the table. He hails from a pivotal electoral region for the GOP; he is far more engaging and genuine than the flat Pawlenty and the flip-flopping Romney; and he can match if not beat Romney on economic policy credibility without his fellow Mormon's corporate-raiding baggage, which will be an issue in the post-bailout era. So expect him to at least be in the (ahem) hunt.

Dan Gerstein, a political communications consultant and commentator based in New York, is the founder and president of Gotham Ghostwriters. He formerly served as communications director to Sen. Joe Lieberman (I-Conn.) and as a senior advisor on his vice-presidential and presidential campaigns. He writes a weekly column for Forbes.

Barack Obama gets an 'F' for protecting Americans

Toby Harnden is the Daily Telegraph's US Editor, based in Washington DC. More about Toby. Contact toby.harnden@telegraph-usa.com.

There is no more solemn duty for an American commander-in-chief than the marshalling of  “all elements of American power” – the phrase Obama himself used on Monday – to protect the people of the United States. In that key respect, Obama failed on Christmas Day, just as President George W. Bush failed on September 11th (though he succeeded in the seven years after that).
Yes, the buck stops in the Oval Office. Obama may have rather smugly given himself a “B+” for his 2009 performance but he gets an F for the events that led to Umar Farouk Abdulmutallab boarding a Detroit-bound plane in Amsterdam with a PETN bomb sewn into his underpants.  He said today that a “systemic failure has occurred”. Well, he’s in charge of that system.
The picture we’re getting is more and more alarming by the hour. Here are some key elements to consider:
1. Abdulmutallab’s father spoke several times to the US Embassy in Abuja, Nigeria and visited a CIA officer there to tell him, apparently, that he feared his son was a jihadist being trained in Yemen. According to CNN, the CIA officer wrote up a report, which then sat in the CIA headquarters at Langley for several weeks without being disseminated to the rest of the intelligence community.  This was not just a casual encounter. Again according to CNN, there were at least two face-to-face meetings, telephone calls and written correspondence with the father. If it’s true that the CIA sat on this then it beggars belief.
2. After 9/11, the huge bureaucracies of the Homeland Security Department and the Directorate of National Intelligence (DNI) were created. Inside the DNI, the National Counter Terrorism Center was created. These organisations were created to “connect the dots”. It may well be that the fault lay with NCTC and not the CIA – CIA spokesman George Little says here that “key biographical information” and information about “possible extremist connections in Yemen” was passed to NCTC. If NCTC knew about it, then did someone at the National Security Council within the White House? There’s a huge blame game beginning so we’ll no doubt know soon enough.
3. It wasn’t just the meeting with the father. According to CBS, “as early as August of 2009 the Central Intelligence Agency was picking up information on a person of interest dubbed ‘The Nigerian’ suspected of meeting with ‘terrorist elements’ in Yemen”. So there were other parts of the jigsaw that were not put together.
4. In his studied desire to be the unBush by responding coolly to events like this, Obama is dangerously close to failing as a leader. Yes, it is good not to shoot from the hip and make broad assertions without the facts. But Obama took three days before speaking to the American people, emerging on Monday in between golf and tennis games in Hawaii to deliver a rather tepid address that significantly underplayed what happened. He described Abdulmutallab as an “isolated extremist” who “allegedly tried to ignite an explosive device on his body” – phrases that indicate a legalistic, downplaying approach that alarms rather than reassures. Today’s words showed a lot more fire and desire to get on top of things – we’ll see whether Obama follows through with action. In the meantime, he went snorkelling.
5. There has been a pattern developing with the Obama administration trying to minimise terrorist attacks. We saw it with Abdul Hakim Mujahid Muhammad, a Muslim convert who murdered a US Army recruit in Little Rock, Arkansas in June. We saw it with Major Nidal Malik Hassan, a Muslim with Palestinian roots who slaughtered 13 at Fort Hood, Texas last month.  In both cases, there were Yemen connections. Obama began to take the same approach with Umar Farouk Abdulmutallab. We’ll see whether this incident shakes him out of that complacency. Whether it’s called the war on terror or not, it’s clear that the US is at war against al-Qaeda and radical Islamists.
6. Guantanamo Bay. It seems that two of the Al-Qaeda in the Arabian Peninsula (AQAP) planners behind this attack were released from Guantanamo Bay during the Bush administration. That calls into question the competence of Bush administration officials but also the wisdom of closing Guantanamo Bay. How many other enemies of America and the West are going to be released back to the battlefield? As Mike Goldfarb asks: “Is the Obama administration seriously still considering sending some 90 Yemeni detainees now being held at Gitmo back to their country of origin, where al Qaeda are apparently running around with impunity?”
7. Janet Napolitano, Obama’s Homeland Security Chief, has been a disaster in this, exhibiting the kind of bureaucratic complacency that makes ordinary citizens want to go postal. On Sunday, she told CNN that “one thing I’d like to point out is that the system worked” and ABC News that “once the incident occurred, the system worked”. A day later, she grumbled that quoted “out of context” before reversing herself, telling NBC: “Our system did not work in this instance. No one is happy or satisfied with that. An extensive review is under way.” The “system worked” comment was a “heckuva job, Brownie” moment. Is she up to the job?
8. Will Obama hold individuals accountable? Briefing the press today behind a cloak of anonymity as a “Senior Administration Official”, Denis McDonough, NSC chief of staff (he gave the game away by saying he was from Minnesota), said that Obama “intends to demand accountability at the highest levels” before adding: ” It remains to be seen what that means exactly.” If heads don’t roll – and soon – then Obama’s words will seem hollow. It’s an opportunity for him to show some real steel.
9. There’s a continued, unfortunate tendency for everyone in Obamaland to preface every comment about something going wrong with a sideswipe against the Bush administration. On Sunday, Bill Burton, Deputy White House Press Secretary, briefed: “On the Sunday shows, Robert Gibbs and Secretary Napolitano made clear that we are pressing ahead with securing our nation against threats and our aggressive posture in the war with al Qaeda.  We are winding down a war in Iraq that took our eye off of the terrorists that attacked us, and have dramatically increased our resources in Afghanistan and Pakistan where those terrorists are.” Why pat yourself on the back for “winding down a war in Iraq that took our eye off of the terrorists that attacked us” when the issue at hand is why the US government under Obama, er, took its eyes off a terrorist who did try to attack us and nearly killed 300 people? It’s bordering on the juvenile. Obama’s been president for a year now. It’s time for him to accept that things that happen as his responsibility, not Bush’s. It’s time for him to echo Ronald Reagan, who said over Iran-Contra: “I take full responsibility for my own actions and for those of my administration.”
10.  Will there be US air attacks against targets in Yemen? Watch this space. It’s safe to say that Al-Qaeda in the Arabian Peninsula or AQAP, described to me by a senior intelligence official today as “officially recognised and in corporate terms a sanctioned franchise of al-Qaeda” that is plainly now seeking to become an international rather than just a regional Islamist player.

The Price for Fannie and Freddie Keeps Going Up

Barney Frank's decision to 'roll the dice' on subsidized housing is becoming an epic disaster for taxpayers.

By PETER J. WALLISON

On Christmas Eve, when most Americans' minds were on other things, the Treasury Department announced that it was removing the $400 billion cap from what the administration believes will be necessary to keep Fannie Mae and Freddie Mac solvent. This action confirms that the decade-long congressional failure to more closely regulate these two government-sponsored enterprises (GSEs) will rank for U.S. taxpayers as one of the worst policy disasters in our history.
Fannie and Freddie's congressional sponsors—some of whom are now leading the administration's effort to "reform" the financial system—have a lot to answer for. Rep. Barney Frank (D., Mass.), chairman of the House Financial Services Committee, sponsored legislation adopted in 2008 that established a new regulatory structure for the GSEs. But by then it was far too late. The GSEs had begun buying risky loans in 1993 to meet the "affordable housing" requirements established under congressional direction by the Department of Housing and Urban Development (HUD).
Most of the damage was done from 2005 through 2007, when Fannie and Freddie were binging on risky mortgages. Back then, Mr. Frank was the bartender, denying that there was any cause for concern, and claiming that he wanted to "roll the dice" on subsidized housing support.

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Associated Press 

 

In 2005, the Senate Banking Committee, then controlled by Republicans, adopted tough regulatory legislation that would have established more auditing and oversight of the two agencies. But it was passed out of committee on a partisan vote, and with no Democratic support it never came to a vote.

By the end of 2008, Fannie and Freddie held or guaranteed approximately 10 million subprime and Alt-A mortgages and mortgage-backed securities (MBS)—risky loans with a total principal balance of $1.6 trillion. These are now defaulting at unprecedented rates, accounting for both their 2008 insolvency and their growing losses today. Since 2008, under government control, the two agencies have continued to buy dicey mortgages in order to stabilize housing prices.
There is more to this ugly situation. New research by Edward Pinto, a former chief credit officer for Fannie Mae and a housing expert, has found that from the time Fannie and Freddie began buying risky loans as early as 1993, they routinely misrepresented the mortgages they were acquiring, reporting them as prime when they had characteristics that made them clearly subprime or Alt-A.
In general, a subprime mortgage refers to the credit of the borrower. A FICO score of less than 660 is the dividing line between prime and subprime, but Fannie and Freddie were reporting these mortgages as prime, according to Mr. Pinto. Fannie has admitted this in a third-quarter 10-Q report in 2008.
An Alt-A mortgage is one in which the quality of the mortgage or the underwriting was deficient; it might lack adequate documentation, have a low or no down payment, or in some other way be more likely than a prime mortgage to default. Fannie and Freddie were also reporting these mortgages as prime, according to Mr. Pinto.
It is easy to see how this misrepresentation was a principal cause of the financial crisis.
Market observers, rating agencies and investors were unaware of the number of subprime and Alt-A mortgages infecting the financial system in late 2006 and early 2007. Of the 26 million subprime and Alt-A loans outstanding in 2008, 10 million were held or guaranteed by Fannie and Freddie, 5.2 million by other government agencies, and 1.4 million were on the books of the four largest U.S. banks.
In addition, about 7.7 million subprime and Alt-A housing loans were in mortgage pools supporting MBS issued by Wall Street banks—which had long before been driven out of the prime market by Fannie and Freddie's government-backed, low-cost funding. The vast majority of these MBS were rated AAA, because the rating agencies' models assumed that the losses that are incurred by subprime and Alt-A loans would be within the historical range for the number of high-risk loans known to be outstanding.
But because of Fannie and Freddie's mislabeling, there were millions more high-risk loans outstanding. That meant default rates as well as the actual losses after foreclosure were going to be outside all prior experience. When these rates began to show up early in 2007, it was apparent something was seriously wrong with assumptions on which AAA ratings had been based.
Losses, it was now certain, would invade the AAA tranches of the mortgage-backed securities outstanding. Investors, having lost confidence in the ratings, fled the MBS market and ultimately the market for all asset-backed securities. They have not yet returned.
By the end of 2007, the MBS market collapsed entirely. Assets once carried at par on financial institutions' balance sheets could not be sold except at distress prices. This raised questions about the stability and even the solvency of most of the world's largest financial institutions.
The first major victim was Bear Stearns, the smallest of the five major Wall Street investment banks but one invested heavily in risky MBS. The government rescue of Bear Stearns in March 2008 signaled that the U.S. government, and perhaps others, would stand behind other large financial institutions. The moral hazard this engendered was deadly when Lehman Brothers' solvency came under challenge. Spreads in the credit default swap market for Lehman, despite massive short-selling, showed very little alarm by investors until just before the fateful weekend of Sept. 13 and 14, when they blew out on fears that the firm might not be rescued.
By that time it was too late for Lehman's counterparties to take the protective action that might have cushioned the shock. As it turned out, however, none of Lehman's largest counterparties failed—so much for the idea that the financial market is "interconnected"—but all market participants now realized they had to know the true financial condition of their counterparties. The result was a freeze-up in interbank lending.
For most people, that freeze-up is the beginning of the financial crisis. But its roots go back to 1993, when Fannie and Freddie began stocking up on subprime and other risky loans while reporting them as prime.
Why Fannie and Freddie did this is still to be determined. But the leading candidate is certainly HUD's affordable housing regulations, which by 2007 required that 55% of all the loans the agencies acquired had to be made to borrowers at or below the median income, with almost half of these required to be low-income borrowers.
Another likely reason for Fannie and Freddie's mislabeling of mortgages was their desire to retain congressional support by "rolling the dice" while making believe they weren't betting. With the Federal Housing Administration, Wall Street investment banks, and Fannie and Freddie all competing for these loans, the bottom of the barrel had long before been scraped and the financial system set up for a crisis.
Mr. Wallison is a senior fellow at the American Enterprise Institute.

 

Democrats need to stop blaming GOP for TSA failure

By: Mark Hemingway
Commentary Staff Writer
12/29/09 12:55 PM EST

 

 

A bizarre new line of attack is emanating from congressional Democrats reeling from concerns the Obama administration may not be doing enough to keep American air-travelers safe.

Department of Homeland Security Secretary's Janet Napolitano's bizarre "the system worked" statement regarding an Islamic radical who smuggled powerful explosives on board a U.S.-bound flight was swiftly condemned. Following that public debacle, Democrats are trying to blame the Transportation Safety Administration's total failure on Sen. Jim DeMint, R-S.C. News items are starting to appear along these lines -- see this McClatchy story "Who's running the TSA? No one, thanks to Sen. Jim DeMint"; "Republican senator DeMint holds up nomination for TSA chief" at the Washington Post; and "GOP blame at TSA?" over at Politico. Our national security apparatus may be in disarray, but thank goodness the Democratic spin machine is in tip-top shape.
 
Democrats are trying to pin blame for the TSA breakdown on Sen. DeMint, R-S.C., who has placed a hold Erroll Southers, the Obama administration's nominee to head up the TSA. However, the Obama administration didn't even nominate Southers until September. It's pretty hard get indignant over DeMint for holding up Southers' nomination for three months -- if the post is so crucial, why did the Obama administration wait nine months to fill it? There are scores of other key administration positions that remain unfilled solely due to the Senate's obsessive health care focus, including a number of key Homeland Security and law enforcement positions.

Additionally, DeMint can't really be blamed for Southers being held-up as long as he has. Senate Democrats have devoted nearly every available bit of time for their health care legislation over the last several months. Surely the Senate Democratic leadership bears some blame for the fact that Southers' nomination hasn't been debated in the Senate.

Finally, DeMint's stated reason for putting a hold on Southers' nomination is a very valid national security concern. Southers' refuses to state whether he will allow the unionization of TSA employees. Currently, there's a statement on the TSA website opposing collective bargaining from the Bush administration. TSA effectiveness depends on rapid response to emerging threats. After a British bomb plot was broken up in 2006, TSA overhauled its policies in 12 hours to deal with new concerns about liquid explosives. It's hard to imagine that kind of flexibility under union rules.

Former Homeland Security Secretary Michael Chertoff was fairly blunt about the risks of unionizing TSA employees: "I'm not going to negotiate our national security or subject our national security to arbitration. Marines don't collectively bargain over whether they're, you know, going to end up being deployed in Anbar province or Baghdad."

And as I noted yesterday, DeMint questioned Homeland Security Secretary Napolitano earlier this month about her support for unionizing TSA employees. He asked her specifically how unionizing employees was consistent with safety, when "every previous administrator at TSA has said that collective bargaining is not consistent with the flexibility and the need to change." Napolitano did not answer the question.

So before Democrats point the finger at Sen. DeMint they owe the American people answers to two questions -- one, if the lack of a TSA administrator is a crucial matter of national security, why did they wait so long to fill the post? And two, in light of TSA's abysmal failure regarding the Christmas Day underwear bomber, how would a radical change such as unionization of TSA make things better when it's consistently been opposed as matter of maintaining security standards and retaining flexibility?

I suspect Congressional Democrats and the Obama administration would rather point at Senator DeMint and shout "Hey, look over here!" than answer either of those pressing questions.
-- Beltway Confidential

The Terror This Time

Janet Napolitano says the system worked. No, we were brave and lucky. 

A U.S. government that has barred the phrase "war on terror" has nonetheless acknowledged that a failed Christmas day bomb attack on an airliner was a terrorist attempt. Can we all now drop the pretense that we stopped fighting a war once Dick Cheney and George W. Bush left the White House?
The attempt by 23-year-old Nigerian Umar Farouk Abdulmutallab follows the alleged murders in Ft. Hood, Texas by Islamist-inspired Major Nidal Hasan in November. Brian Jenkins, who studies terrorism for the Rand Corporation, says there were more terror incidents (12), including thwarted plots, on U.S. soil in 2009 than in any year since 2001. The jihadists don't seem to like Americans any better because we're closing down Guantanamo.

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Associated Press

Northwest Airlines flight 253 sits on the tarmac after requesting emergency help at Detroit Metropolitan Airport in Romulus, Mich.

This increasing terror tempo makes the Obama Administration's reflexive impulse to treat terrorists like routine criminal suspects all the more worrisome. It immediately indicted Mr. Abdulmutallab on criminal charges of trying to destroy an aircraft, despite reports that he told officials he had ties to al Qaeda and had picked up his PETN explosive in Yemen. The charges mean the Nigerian can only be interrogated like any other defendant in a criminal case, subject to having a lawyer present and his Miranda rights read.

Yet he is precisely the kind of illegal enemy combatant who should be interrogated first with the goal of preventing future attacks and learning more about terror networks rather than gaining a single conviction. We now have to hope he cooperates voluntarily.
Janet Napolitano, the secretary of homeland security, told CNN yesterday that "one thing I'd like to point out is that the system worked." Yet the terrorist screening system seems to have failed in at least two crucial ways: first, in failing to revoke a visa to the U.S. that Mr. Abdulmutallab had obtained last June despite a later warning to U.S. consular officials from his own father that he was becoming radicalized and might have terror network ties; and second, in not adding him to a no-fly list from a lower-level watch list.
The episode is a reminder that the fight against terrorism requires even more interagency cooperation, and Congress should investigate whether such communication was lacking in this case. No one should leap to conclusions about who is responsible for any mistakes, but Ms. Napolitano isn't reassuring when she utters happy talk that it all "went very smoothly." The day was saved not because of the antiterror "system" but because the explosive failed to ignite and because a Dutch passenger and flight attendants acted heroically to subdue the man, put out the fire and detach the explosive.
The lesson here is the same as Flight 93 on 9/11 and shoe-bomber Richard Reid, which is that civilians willing to act in their own self-defense are a crucial part of "homeland security." The willingness of passengers and crew to identify potential threats seems more useful than more onerous airport screening, which only gives terrorists the satisfaction of knowing they have made air travel even more unbearable. The new rule to keep passengers in their seats in the final hour of some flights seems all too typical of arbitrary rules that inconvenience innocents but not terrorists.
On that score, the settlement reportedly won earlier this year by the so-called flying imams against a U.S. airline for knocking them off a flight in 2006 sends exactly the wrong message. The interests of nonradical Muslims will hardly be served if political correctness allows the next terror attack to succeed.
Mr. Abdulmutallab's alleged links to Yemen also raise questions about why the Administration is now returning Guantanamo detainees to that unstable Middle East nation. Pentagon officials have raised alarms about Yemen as an emerging al Qaeda sanctuary for at least a year, and now we may have the first case of a terrorist trained there to strike at U.S. airline or domestic targets. The Yemen government says it is cooperating with the U.S., and the CIA is said to be providing intelligence for some of Aden's anti-al Qaeda efforts. But at this point the repatriation of Gitmo detainees to Yemen seems dangerous, and recklessly so.
No doubt in the days ahead we'll learn more about how the young Nigerian became radicalized. Like many of the 9/11 murderers, he came from an affluent family and was highly educated. We know by now that the poverty-causes-terrorism school is false, but this is one more reminder. Authorities will also want to know how he was recruited—whether in person during a trip to Yemen or other sanctuary, through al Qaeda agents elsewhere, or perhaps via the Internet like Major Hasan. The report that the Nigerian turned more radical only in the last 18 months shows that our antiterror vigilance will have to continue for years, if not decades, to come.
Such vigilance is easier to sustain, and likelier to succeed in deterring attacks, if we understand that we are still fighting a multifront war against the various elements of radical Islam. This time, thanks to luck and bravery, the 278 passengers and crew of Northwest Flight 253 avoided death. We'd rather take the luck out of it.

 

COPS fear that 25 British-born Muslims are plotting to bomb Western airliners

Terror ... Abdulmutallab

 

The fanatics, in five groups, are now training at secret terror camps in Yemen.

It was there London-educated Umar Abdulmutallab, 23, prepared for his Christmas Day bid to blow up a US jet.

The British extremists in Yemen are in their early 20s and from Bradford, Luton and Leytonstone, East London.

They are due to return to the UK early in 2010 and will then await internet instructions from al-Qaeda on when to strike.

A Scotland Yard source said: "The great fear is Abdulmutallab is the first of many ready to attack planes and kill tens of thousands.

"We know there are four or five radicalised British Muslim cells in the Yemen.

"They are due back within months when they will be under constant surveillance."

The 25 suspects, of Pakistani and Somali descent, were radicalised in UK mosques.

Some had been to university and studied engineering or computer sciences.

Others were former street gang members.

Special Branch monitored them as they flew to Yemen, in the Middle East, from British airports in the spring and summer.

In almost every case, their tickets were paid for in cash and bought less than a week before travel.

The source added: "Imams would have promised them rewards in heaven for becoming suicide bombers prepared to kill Westerners."

PM Gordon Brown and Metropolitan Police Commissioner Sir Paul Stephenson were being briefed.

The warnings came as another Nigerian was last night held in Detroit on the same flight attacked on Christmas Day. It later emerged the man had fallen ill.

Al-Qaeda in Yemen warned the West four days before Friday's attack that a bombing was imminent.

Terrorist Mohammed al-Kalwi issued the video threat in the wake of a Yemeni airstrike on a militant training camp.

Al-Kalwi was reportedly killed in another airstrike on Thursday.

President Barack Obama's administration is to review all airport security.

Wealthy, quiet, unassuming: the Christmas Day bomb suspect

The inside story of the privileged student who embraced al-Qa'ida and tried to blow a transatlantic jet out of the sky - and the lessons for us all

By Andrew Johnson and Emily Dugan

Sunday, 27 December 2009

Jason Alden

A block of flats on Mansfield Street, Central London where a suspected terrorist who attempted to detinate a device on a plane arriving in the US is thought to have lived

With his wealth, privilege and education at one of Britain's leading universities, Abdul Farouk Abdulmutallab had the world at his feet – able to choose from a range of futures in which to make his mark on the world.

Instead, the son of one of Nigeria's most important figures opted to make his impact in a very different way – by detonating 80g of explosives sewn into his underpants, and trying to destroy a passenger jet as it came in to land at Detroit Airport on Christmas Day.

As he was charged by US authorities last night with attempting to blow up an airliner, a surprising picture emerged of the would-be bomber.

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Abdulmutallab, 23, had lived a gilded life, and, for the three years he studied in London, he stayed in a £2m flat. He was from a very different background to many of the other al-Qa'ida recruits who opt for martyrdom.

The charges were read out to him by US District Judge Paul Borman in a conference room at the medical centre where he is receiving treatment for burns. Agents brought Abdulmutallab, who had a blanket over his lap and was wearing a green hospital robe, into the room in a wheelchair.

Abdulmutallab's father, Umaru, is the former economics minister of Nigeria. He retired earlier this month as the chairman of the First Bank of Nigeria but is still on the boards of several of Nigeria's biggest firms, including Jaiz International, a holding company for the Islamic Bank. The 70-year-old, who was also educated in London, holds the Commander of the Order of the Niger as well as the Italian Order of Merit.

Dr Mutallab said he was planning to meet with police in Nigeria last night after realising his son had joined the notorious roster of al-Qa'ida terrorists, and is said to have warned the US authorities about his son's extreme views six months ago.

Police in London were collaborating with the American-led investigation into the would-be bomber. Scotland Yard detectives were searching his flat and two others in the same mansion block in Marylebone, central London. They later cordoned off the street lined with Rolls-Royce, Jaguar and Mercedes cars. Police were also understood to be searching the basement of the building.

Abdulmutallab was reportedly on a security watch list, but those who studied with him expressed shock that the person who seemed so quiet and unassuming – a devout Muslim but not radical – apparently came close to perpetrating a Christmas Day massacre.

Fabrizio Cavallo Marincola, 22, who studied mechanical engineering beside Abdulmutallab – nicknamed Biggie – at University College London, said that he graduated in May 2008 and showed no signs of radicalisation or of links to al-Qa'ida. "We worked on projects together," he said. "He always did the bare minimum of work and would just show up to classes. When we were studying, he always would go off to pray.

"He was pretty quiet and didn't socialise much or have a girlfriend that I knew of. I didn't get to talk to him much on a personal level. I was really shocked when I saw the reports. You would never imagine him pulling off something like this."

After graduating, Abdulmutallab tried to return to Britain but his visa request was refused. He applied to return for a six-month course, but was barred by the UK Border Agency which judged that the college he applied to was "not genuine".

Reports from Nigeria suggested that Abdulmutallab's family had seen a very different person to the one studying at UCL. He apparently cut all contact with his family after university, but is thought to have visited Egypt and then Dubai.

"I believe he might have been to Yemen, but we are investigating to determine that," his father said.

More details have also emerged of what happened on flight 253 prior to landing at Detroit. Abdulmutallab went to the bathroom for about 20 minutes. When he returned, he said his stomach was upset and pulled a blanket over himself. The 278 passengers on the eight-hour Delta Airways flight from Amsterdam were first alerted that something was wrong when they heard what was described as "a firecracker in a pillowcase".

One passenger, Jasper Schuringa, who was the first on the plane to tackle and subdue the suspect, told CNN: "I basically reacted directly. when you hear a pop on the plane, you are awake. I just jumped. I didn't think, I just went over there and tried to save the plane – and we did."

Mr Schuringa, who had burns to one of his hands, added: "A fire started under his seat. I was calling for water, water. But then the fire was getting a little worse. So I grabbed the suspect out of the seat, because, if there was any more explosives on him, that would have been very dangerous. And then the flight attendants came. We took him to first class and stripped him to make sure he had no more weapons on him. "It was very quick. Everyone was panicking," he said of the scene on the descending aircraft.

Mr Schuringa, who was due to connect in Detroit to a Miami flight for a Christmas holiday, said of the suspect: "He was shaking. He didn't resist anything. It's just hard to believe that he was trying to blow up this plane. He was in a trance. He was very afraid."

Mr Schuringa also said that when he first grabbed the suspect he saw a burning liquid dripping on to the floor.

The high explosive Abdulmutallab used was identified by the FBI as Pentaerythritol, better known as PETN – a major component of Semtex. He injected a detonating liquid into the PETN with a syringe, but the bomb failed to explode.

The revelation of Abdulmutallab's background has confounded terror experts. Dr Magnus Ranstorp of the Center for Asymmetric Threat Studies at the Swedish National Defence College said that the attempted bombing "didn't square".

"On the one hand, it seems he's been on the terror watch list but not on the no-fly list," he said. "That doesn't square because the American Department for Homeland Security has pretty stringent data-mining capability. I don't understand how he had a valid visa if he was known on the terror watch list.

"Why didn't he go to the toilets to detonate the bomb? Why would he try to set it off 20 minutes before he's going to land? It could probably have been successful had the person not been amateurish. I think this is a sign that it's much more difficult now for al-Qa'ida to pull off something serious."

Chaim Koppel, a security consultant, added: "I think the explosive was supposed to go bang rather than just start a fire. The terrorists probably didn't mix it well enough. Maybe they didn't do enough practice runs, but the more the guy is trained, the more exposed he is to MI5, MI6, the FBI and other security agencies, so he probably didn't receive enough training."

Nigerian newspapers reported that Abdulmutallab's father, who lives in Katsina, Nigeria, had informed the US embassy of his son's activities because he had become so concerned about his religious views.

A source said Dr Mutallab was "devastated" at the news but also "surprised" his son had been allowed to travel after he had reported him to the authorities. Abdulmutallab had allegedly become noted for his extreme religious views when he was at the British International School in Togo, where he is said to have preached Islam to his friends.

An official briefing on the attack said the US had known for at least two years that the suspect could have terrorist ties. Abdulmutallab has been on a list that included people with known or suspected contacts or ties to a terrorist or terrorist organisation. The list is maintained by the US National Counterterrorism Center and includes about 550,000 names.

The impact of the intended attack will lead airports and governments to again review security measures as terrorists seek more ingenious ways of smuggling explosives through sophisticated security measures.

Police know that the KLM ticket that Abdulmutallab travelled on was purchased on 16 December, with cash, in Nigeria. The departure airport was changed from Accra to Lagos shortly afterwards. When he took his window seat, number 19A, he had only one piece of hand luggage and none in the hold – unusual for someone who was allegedly planning a two-week stay in Detroit.

Abdulmutallab also smuggled the explosives through security at Schiphol airport, the connecting point for the flight from Nigeria. "There were no irregularities at the security check," an official for the National Co-ordinator for Counterterrorism said. "It cannot be excluded that potentially dangerous items were brought on board, especially objects that cannot be read by current technology."

Officials with the federal Transport Security Authority in the US said that while enhanced security measures had been imposed at airports across the country and abroad after the attempted bombing, it had no plans to alter basic procedures or requirements for passengers. But at least one US senator said she intended to convene urgent hearings on what new steps might have to be taken to protect international air travel. Senator Susan Collins of Maine said: "This incident is a disturbing reminder that the terrorist threat is still very real."

Some airlines will be introducing tough new security checks.

Alan Johnson, the Home Secretary, said: "With the full support of the Prime Minister, Transport Secretary, Foreign Secretary and ministerial colleagues, we will ensure that the UK continues to have in place the most appropriate security measures to protect the public from the terrorist threat, wherever it originates from."

Expert's view: The latest in a line of near disasters

The failed attempt to blow up flight 253 as it came in to land at Detroit airport is the latest in an ominous pattern of terror attacks that have emerged from, or have been attempted in, the United Kingdom over the past few years.

Dr Sally Leivesley, a leading terror expert who advises governments and businesses, said yesterday there have been several incidents where detonators have failed to ignite devices, with a major terror attack averted through luck or human error.

They include Richard Reid, who was overpowered on a transatlantic flight as he attempted to detonate a bomb hidden in his shoe; the failed attacks on London transport of July 2005 which came two weeks after the 7/7 bombings; the attempted attack on Glasgow airport in August 2007; the discovery of two cars packed with gas and petrol in London the day before the Glasgow attack; and an incident in Exeter in 2008 when a man failed to detonate a device in a café's toilets.

"The devices may not be competent," Dr Leivesley said. "Scientists will now try to replicate the method in the laboratory and then we'll know. The reason it didn't go off may be a fault with the device, or human error. The reports so far suggest that the bomber sat quietly after the incident, but had suffered third-degree burns on his leg. That suggests to me that he may have been sedated in order not to appear anxious, but that may have impaired his ability."

The other disturbing development, she added, is the use of the body to conceal explosives. In August a terrorist tried to assassinate the Saudi Prince Mohammed bin Nayef with explosives implanted in his body.

"The bomber suffered third-degree burns on his leg," Dr Leivesley said. "It's possible that a part of the explosive was hidden either inside the inner thigh or wrapped over that area with skins. With baggy clothing, it could be missed during a search, as could a syringe hidden in the groin. There are no metal components involved, so it wouldn't trigger a security device. He would then use the syringe to inject a liquid which would detonate the explosive."

Another significant factor is the report that the bomber was an engineering student at University College London. Dr Leivesley said that al-Qa'ida was recruiting people with engineering qualifications as well as highly placed scientists, particularly in the nuclear field.

"Al-Qa'ida is finding it difficult to recruit young people," she said. "And, interestingly, the election of Barack Obama is a factor in that, because, whatever you think of him as a president, the fact of him shows young people that there is an alternative to killing yourself. Al-Qa'ida is, however, targeting more highly skilled people."

Andrew Johnson

Midair Bomb Attempt Fails

Man on Flight to Detroit Claims Al Qaeda Ties; Obama Tightens Security

By NEAL E. BOUDETTE in Detroit, ANDY PASZTOR in Los Angeles and PETER SPIEGEL in Washington

Associated Press

Northwest Flight 253 after arriving Friday in Detroit from Amsterdam. Delta Air Lines now owns Northwest.

A passenger on a Detroit-bound Northwest Airlines flight tried Friday to detonate an explosive device strapped to his leg and later told investigators he had affiliations with Al Qaeda and was trying to blow up the plane, according to a senior U.S. official.
"We believe this was an attempted act of terrorism," said a White House official.
The suspect told investigators he was given the device by al Qaeda operatives in Yemen, along with detonation instructions, the official said. "This guy claims he is tied to al Qaeda, specifically in Yemen," the official said. "He claims he was on orders from al Qaeda in Yemen. Who knows if that's true?"
Rep. Peter King (R., N.Y.) identified the man as a 23-year-old Nigerian named Abdul Mudallad. Mr. King said the flight began in Nigeria and went through Amsterdam en route to Detroit. The suspect's name didn't appear on any terrorist watch lists maintained by U.S. authorities, he said, but it turned up "hot" in other terrorism-related databases maintained by intelligence officials.
One U.S. intelligence official said the alleged explosive was a mix of powder and liquid. Mr. King said the concoction was strapped to Mr. Mudallad's leg.

FLASHBACK

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'Shoe bomber' Richard Reid was convicted for trying to blow up a jetliner in 2001 with plastic explosives concealed in his shoes. He is serving a life sentence in a Colorado prison.

• From the Archives: U.S. Indicts Shoe Bomber on Nine Charges

The White House said President Barack Obama, vacationing in Hawaii, was notified of the incident after 9 a.m. local time and held two secure conference calls with his national-security team. He ordered increased security for air travel, the White House said. The Department of Homeland Security said airline passengers should expect to see additional screening measures on both domestic and international flights.
The incident aboard Northwest Flight 253, an Airbus 330-300 carrying about 278 passengers, came as the plane was approaching the airport just before noon. It landed safely after the pilots declared an emergency. Though a Northwest flight, the plane had Delta markings. After a merger, Delta Air Lines Inc. now owns Northwest.
Stephanie van Herk, a passenger from the Netherlands who was in seat 18B, said the plane had lowered its landing gear when she heard a loud bang. At first she thought the plane might have blown a tire, she said, but then she saw flame leap from the lap of a man in the row behind her in the window seat 19A. "It was higher than the seat," said Ms. van Herk, 22 years old.
"Then everyone started screaming," she said. "It was panic." Flight attendants shouted "What are you doing? What are you doing?" They called for water, and the man began pulling down his burning pants, said Ms. van Herk. She and other passengers got water from the galley and the man was doused. Then a Dutch man jumped him.

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WILLIAM ARCHIE/Detroit Free Press

Syed Jafry, right, said he was sitting three rows behind a man suspected of trying to detonate explosives on Flight 253.

Flight passenger Syed Jafry, a U.S. citizen who had flown from the United Arab Emirates, said he was seated three rows behind when he saw a glow and smelled smoke. He said, "A young man behind me jumped on him."

The explosive was at first believed to have been a small firecracker.
One passenger was taken to the University of Michigan Medical Center and remained hospitalized Friday.
Shortly after the plane landed around 11:50 a.m. Detroit time, the Transportation Security Administration said that "out of an abundance of caution," the jet's passengers were put through a special security screening and luggage was re-examined. TSA and FBI officials interviewed passengers as the plane sat at a remote corner of the airport, surrounded by law-enforcement and emergency vehicles.
Regardless of what the investigation uncovers about the suspect's motives or the material that ignited, Friday's incident is likely to renew debate over whether new security systems are necessary to allow flight attendants to alert cockpit crews.
In addition to calling pilots on the intercom, airlines and security experts for years have debated the idea of providing cabin crews with additional ways to warn pilots about potential threats from passengers. Video cameras, wireless alerting devices or some type of discreet alarm switch have all been discussed as remedies.

Homeland Insecurity

• U.S. Faces Rising Threat From Its Own Citizens
  12/15/09

The incident also is bound to renew debate over the effectiveness of the current system of international "no-fly" lists, aimed at identifying passengers with terrorist connections and keeping them off airliners around the globe.
So far, the Federal Aviation Administration and many airlines have been resisting such mandates, arguing they are expensive and unnecessary.
The additional security measures ordered by TSA, according to government and industry officials, could cause further delays to what already has been a difficult and storm-battered holiday travel season for millions of U.S. passengers
Delta Air Lines Inc. said it was cooperating with investigators.
—Cam Simpson and Alex P. Kellogg contributed to this article. Write to Neal E. Boudette at neal.boudette@wsj.com, Andy Pasztor at andy.pasztor@wsj.com and Peter Spiegel at peter.spiegel@wsj.com

 

In Hoc Anno Domini

So the light came into the world.

When Saul of Tarsus set out on his journey to Damascus the whole of the known world lay in bondage. There was one state, and it was Rome. There was one master for it all, and he was Tiberius Caesar.
Everywhere there was civil order, for the arm of the Roman law was long. Everywhere there was stability, in government and in society, for the centurions saw that it was so.
But everywhere there was something else, too. There was oppression—for those who were not the friends of Tiberius Caesar. There was the tax gatherer to take the grain from the fields and the flax from the spindle to feed the legions or to fill the hungry treasury from which divine Caesar gave largess to the people. There was the impressor to find recruits for the circuses. There were executioners to quiet those whom the Emperor proscribed. What was a man for but to serve Caesar?
There was the persecution of men who dared think differently, who heard strange voices or read strange manuscripts. There was enslavement of men whose tribes came not from Rome, disdain for those who did not have the familiar visage. And most of all, there was everywhere a contempt for human life. What, to the strong, was one man more or less in a crowded world?
Then, of a sudden, there was a light in the world, and a man from Galilee saying, Render unto Caesar the things which are Caesar's and unto God the things that are God's.
And the voice from Galilee, which would defy Caesar, offered a new Kingdom in which each man could walk upright and bow to none but his God. Inasmuch as ye have done it unto one of the least of these my brethren, ye have done it unto me. And he sent this gospel of the Kingdom of Man into the uttermost ends of the earth.
So the light came into the world and the men who lived in darkness were afraid, and they tried to lower a curtain so that man would still believe salvation lay with the leaders.
But it came to pass for a while in divers places that the truth did set man free, although the men of darkness were offended and they tried to put out the light. The voice said, Haste ye. Walk while you have the light, lest darkness come upon you, for he that walketh in darkness knoweth not whither he goeth.
Along the road to Damascus the light shone brightly. But afterward Paul of Tarsus, too, was sore afraid. He feared that other Caesars, other prophets, might one day persuade men that man was nothing save a servant unto them, that men might yield up their birthright from God for pottage and walk no more in freedom.
Then might it come to pass that darkness would settle again over the lands and there would be a burning of books and men would think only of what they should eat and what they should wear, and would give heed only to new Caesars and to false prophets. Then might it come to pass that men would not look upward to see even a winter's star in the East, and once more, there would be no light at all in the darkness.
And so Paul, the apostle of the Son of Man, spoke to his brethren, the Galatians, the words he would have us remember afterward in each of the years of his Lord:
Stand fast therefore in the liberty wherewith Christ has made us free and be not entangled again with the yoke of bondage.
This editorial was written in 1949 by the late Vermont Royster and has been published annually since.

 

Harry Reid Turns Insurance Into a Public Utility

The health bill creates a massive cash crunch and then bankruptcies for many insurers.

By RICHARD A. EPSTEIN

As Harry Reid's 2,000 page health-care bill is being rammed through the Senate, most of the public debate has been focused on its expanded coverage, its now defunct public option, and its high taxes. Lost in the shuffle has been its intensely coercive requirements on health insurance issuers, especially in the individual and small group markets. Taken together, these restrictions are likely to drive them out of business and run afoul of the constitutional guarantee that all regulated industries have to a reasonable, risk-adjusted, rate of return on their invested capital.
The perils of the Reid bill are made evident in a recent Congressional Budget Office (CBO) report that focused on the bill's rebate program, which holds that once an insurance company spends more than 10% of its revenues on administrative expenses, its customers are entitled to an indefinite statutory rebate determined by state regulatory authorities subject to oversight by the Secretary of Health and Human Services. Defining these administrative costs is a royal headache, but everyone agrees that they are heaviest in the small group and individual markets, where they typically range between 25% and 30%, without the new regulatory hassles.
The CBO concluded that this one restriction turned the Reid bill into "an essentially governmental program." In other words, the targeted health insurers would become de facto public utilities whose profits are gutted when the huge compliance costs under the Reid bill are piled on top of the hefty costs inherent in running a labor intensive health-care insurance business.
Worse still, the statutory rebate is only the tip of a larger regulatory iceberg that permeates the bill. Normally, insurers have the power to underwrite—to choose their line of business, to select and to price risks, and to decline unattractive risks. Not under the Reid bill. In its frantic effort to expand coverage to the uninsured, the bill will create state health-care exchanges supported by generous federal subsidies to unspecified millions of needy and low-income individuals. Any health insurance carrier that steers clear of these exchanges cannot keep its customers. Any insurance carrier that enters Mr. Reid's inferno will lose its financial shirt.

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David Klein 

 

Here are some reasons why. Initially, all insurers have to take all comers and to renew all policies except for nonpayment of premiums. Insurers are not allowed to take into account differential risks based on pre-existing conditions. And the premium differentials based on such matters as age and tobacco use are smaller than the market spreads. If too many customers demand coverage from a given insurer to insure efficiently, it's the government that will decide how many they have to keep and who they are.

Next, it's the government that requires extensive coverage including "ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance abuse disorder services, prescription drugs, rehabilitative and habilitative [sic!] services and devices, laboratory services, preventive and wellness services and chronic disease management, pediatric services, including oral and vision care." The price squeeze gets even tighter because in every required area of care a collection of government standards will help set the minimum level of required services.
Ostensibly, the Reid bill does not impose any direct price controls on what health insurers can charge for this veritable cornucopia of services. But the bill's complex, cooperative federalism scheme authorizes state regulators, after recommendations from the federal government, to exclude insurers from the exchanges if their prices are too high, which would again be a competitive death knell. Exile from the exchange does not, however, restore traditional underwriting controls, as the Reid bill and other federal and state regulation continue to apply to these firms.
One common talking point of proponents of the Reid bill is that competitive markets don't really do a very good job of reining in costs. Indeed, the most common justification for the public option was to supply real competition to the private sector. Now that the option has vanished, the alternative regulatory technique is brute regulatory force. The argument seems to be that price controls alone can force out the waste and inefficiency that are posited to be the hallmark of private markets.
By this twisted logic, rent control is the perfect path to efficient competitive markets. Unfortunately, here no insurer can simply cut back on services provided given the minimum standards. And if it raises rates, the rebates cut ever more deeply during the next period. So essentially, there is no viable option for these firms either on the state exchange or off it.
The economic chaos that is likely to follow the disruption of private insurance health-care markets draws no attention from its Democratic supporters. Oddly enough, it has also been overlooked by the opponents of the bill who are so appalled by this hydra-headed monster that they don't have the patience to parse its mind-numbing provision.
Perhaps that indifference will end if the Supreme Court takes a hard look at this new adventure into rate regulation. Traditional public utility regulation applies to such services as gas, electric and water, which were supplied by natural monopolists. Left unregulated, they could charge excessive or discriminatory prices. The constitutional art of rate regulation sought to keep monopolists at competitive rates of return.

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To control against the risk of confiscatory rates, the Supreme Court also required the state regulator to allow each firm to obtain a market rate of return on its invested capital, taking into account the inherent riskiness of the venture. The orthodox legal approach was summed up in Justice William Rehnquist's unanimous 1989 decision in Duquesne Light v. Barasch. Duquesne Light allowed the state regulators a wide choice of methods so long as the "bottom line" secured the appropriate rate of return. There's no need to discuss the fine points here, because not one syllable in the Reid bill is dedicated to securing that constitutionally guaranteed minimum rate of return.
Duquesne Light carries extra weight here because health-insurance industries are far from natural monopolies, so that regulating their rates calls for an extra dollop of judicial scrutiny. At this point, the Reid bill is on a collision course with the Constitution. I take it for granted that, constitutionally, the federal government could not just require all private health insurers to liquidate tomorrow, without compensation.
What's done here is a close second. The inexorable squeeze between the constricted revenue sources allowable that insurers get under the Reid bill and the extensive and uncertain new legal obligations it imposes is likely to result in a massive cash-flow crunch that will drive the firms in the individual and small-group health insurance markets into speedy bankruptcy. The Supreme Court should apply the constitutional brakes to this foolhardy scheme if Congress doesn't come to its senses first.
Mr. Epstein is a professor of law at the University of Chicago and a senior fellow at the Hoover Institution. This article is based on a longer study released by the Manhattan Institute at www.medicalprogresstoday.com.

 

The States Can Check Washington's Power

States should be able to directly propose constitutional amendments.

By DAVID B. RIVKIN JR. AND LEE A. CASEY

For nearly a hundred years, federal power has expanded at the expense of the states—to a point where the even the wages and hours of state employees are subject to federal control. Basic health and safety regulations that were long exercised by states under their "police power" are now dominated by Washington.
The courts have similarly distorted the Constitution by inventing new constitutional rights and failing to limit governmental power as provided for in the document. The aggrandizement of judicial power has been a particularly vexing challenge, since it is inherently incapable of correction through the normal political channels.
There is a way to deter further constitutional mischief from Congress and the federal courts, and restore some semblance of the proper federal-state balance. That is to give to states—and through them the people—a greater role in the constitutional amendment process.
The idea is simple, and is already being mooted in conservative legal circles. Today, only Congress can propose constitutional amendments—and Congress of course has little interest in proposing limits on its own power. Since the mid-19th century, no amendment has actually limited federal authority.
But what if a number of states, acting together, also could propose amendments? That has the potential to reinvigorate the states as a check on federal power. It could also return states to a more central policy-making role.

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The Framers would have approved the idea of giving states a more direct role in the amendment process. They fully expected that the possibility of amendments originating with the states would deter federal aggrandizement, and provided in Article V that Congress must call a convention to consider amendments anytime two-thirds of the state legislatures demand it. As Alexander Hamilton wrote in The Federalist Papers of this process: "[W]e may safely rely on the disposition of the state legislatures to erect barriers against the encroachments of the national authority."
What the Framers did not anticipate, however, was the profound reaction to their own "runaway" convention in 1787. By junking the Articles of Confederation in favor of a new Constitution, they gave us strong and stable government. They also showed exactly what constitutional conventions can do. As a result, no similar body has ever been assembled, and even suggesting a new convention can freeze the marrow in constitutional lawyers.
The answer is to amend the Constitution to permit two-thirds of the states to propose amendments directly. To do so, of course, means that the states would have to first call for a constitutional convention—at which they could propose such a change.
What about the risk of a runaway convention? We think that risk is very small. In the first place, the Constitution is not the Articles of Confederation, which were ratified only six years before they were replaced.
By contrast, the American people are profoundly attached to the Constitution. It cannot and will not be replaced by an amending convention. In any event, nothing proposed at such a convention—including a change to the current amendment process—could be adopted without three-fourths of the state legislatures agreeing.
Even to propose such a course might seem imprudent—but then again, the Framers of the U.S. Constitution never thought the balance of powers between states and the federal government would ever get so profoundly distorted. James Madison dismissed claims that the new federal government could displace the states as "chimerical fears," assuring his readers in The Federalist Papers that "[t]he powers delegated by the proposed Constitution to the Federal Government, are few and defined. Those which are to remain in the State Governments are numerous and indefinite." Indeed, the Framers considered a "vertical" separation of powers—between federal and state authority—just as important as guaranteeing the success of liberty as the "horizontal" separation of powers between the president, Congress and the courts.
True enough, re-establishing a proper balance—where, as Madison wrote in The Federalist Papers, Washington is responsible "principally [for] external objects" and the states for "all the objects, which, in the ordinary course of affairs, concern the lives, liberties and properties of the people"—will not be easy.
The gain will be substantial. Although it seems that permitting the states to propose amendments is a small thing, especially because ratification would still require three-fourths of the states to agree, it would shift the power calculus—and create a potential for action that the president, Congress and courts could never ignore as they consider the proper boundaries of their own authority.
Moreover, the effort to enable the states to check Washington's power would provide a constructive outlet for much of the growing anger—specially evident in phenomena such as the "tea party" movement—toward the political elites of both parties. It is not a partisan proposal and is difficult to oppose. The purpose is to move significant authority closer to the electorate, but in a measured, "conservative" manner that is in no sense "populist."
Opponents would have no fig leaf. They would have to openly argue that any effort to limit Washington's reach is a bad thing. And that is an argument they are likely to lose.
Messrs. Rivkin and Casey, Washington, D.C.-based attorneys, served in the Department of Justice during the Ronald Reagan and George H.W. Bush administrations.

 

Big Government Backlash

The enormous and helter-skelter expansions of the federal government seem to be sinking the president's approval ratings.

President Obama's approval rating has sunk below 50% for the first time, but for our money the bigger polling news is the way his agenda is turning the public against activist government.
Last week's NBC/Wall Street Journal survey asked whether voters thought that "government should do more to solve problems and help meet the needs of people" or if "government is doing too many things better left to businesses and individuals." This is a familiar polling question to gauge the credibility of government, albeit a bit loaded toward liberal social rhetoric.
Some 47% nonetheless replied that they thought government is doing too much, while only 44% believed that it should do more. That's a striking change since February, when the views were reversed, with 51% saying the government should do more, and only 40% saying do less.
Even more startling, in the latest survey only 18% said they trusted government to do the right thing "most of the time," down from a high of 36% in July 2004 and 27% in August 2005. Some 32% said they trusted government to do the right thing "almost never," up from single digits in earlier surveys when it was a volunteered response.
One of Mr. Obama's not so subtle political goals has been to rehabilitate the public's confidence in government as a way to further his policies of expanding the entitlement and welfare state. As he said during the campaign, the President sees himself as the anti-Reagan, seeking to build a new Democratic majority as the party of government. And in his September health-care speech to Congress, he devoted several paragraphs to defending government as an agent of social change.
So far, however, his Administration's enormous and helter-skelter expansions of the federal government seem to be having the opposite political effect.

 

Change Nobody Believes In

A bill so reckless that it has to be rammed through on a partisan vote on Christmas eve.

And tidings of comfort and joy from Harry Reid too. The Senate Majority Leader has decided that the last few days before Christmas are the opportune moment for a narrow majority of Democrats to stuff ObamaCare through the Senate to meet an arbitrary White House deadline. Barring some extraordinary reversal, it now seems as if they have the 60 votes they need to jump off this cliff, with one-seventh of the economy in tow.
Mr. Obama promised a new era of transparent good government, yet on Saturday morning Mr. Reid threw out the 2,100-page bill that the world's greatest deliberative body spent just 17 days debating and replaced it with a new "manager's amendment" that was stapled together in covert partisan negotiations. Democrats are barely even bothering to pretend to care what's in it, not that any Senator had the chance to digest it in the 38 hours before the first cloture vote at 1 a.m. this morning. After procedural motions that allow for no amendments, the final vote could come at 9 p.m. on December 24.
Even in World War I there was a Christmas truce.
The rushed, secretive way that a bill this destructive and unpopular is being forced on the country shows that "reform" has devolved into the raw exercise of political power for the single purpose of permanently expanding the American entitlement state. An increasing roll of leaders in health care and business are looking on aghast at a bill that is so large and convoluted that no one can truly understand it, as Finance Chairman Max Baucus admitted on the floor last week. The only goal is to ram it into law while the political window is still open, and clean up the mess later.

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• Health costs. From the outset, the White House's core claim was that reform would reduce health costs for individuals and businesses, and they're sticking to that story. "Anyone who says otherwise simply hasn't read the bills," Mr. Obama said over the weekend. This is so utterly disingenuous that we doubt the President really believes it.
The best and most rigorous cost analysis was recently released by the insurer WellPoint, which mined its actuarial data in various regional markets to model the Senate bill. WellPoint found that a healthy 25-year-old in Milwaukee buying coverage on the individual market will see his costs rise by 178%. A small business based in Richmond with eight employees in average health will see a 23% increase. Insurance costs for a 40-year-old family with two kids living in Indianapolis will pay 106% more. And on and on.
These increases are solely the result of ObamaCare—above and far beyond the status quo—because its strict restrictions on underwriting and risk-pooling would distort insurance markets. All but a handful of states have rejected regulations like "community rating" because they encourage younger and healthier buyers to wait until they need expensive care, increasing costs for everyone. Benefits and pricing will now be determined by politics.
As for the White House's line about cutting costs by eliminating supposed "waste," even Victor Fuchs, an eminent economist generally supportive of ObamaCare, warned last week that these political theories are overly simplistic. "The oft-heard promise 'we will find out what works and what does not' scarcely does justice to the complexity of medical practice," the Stanford professor wrote.
• Steep declines in choice and quality. This is all of a piece with the hubris of an Administration that thinks it can substitute government planning for market forces in determining where the $33 trillion the U.S. will spend on medicine over the next decade should go.
This centralized system means above all fewer choices; what works for the political class must work for everyone. With formerly private insurers converted into public utilities, for instance, they'll inevitably be banned from selling products like health savings accounts that encourage more cost-conscious decisions.
Unnoticed by the press corps, the Congressional Budget Office argued recently that the Senate bill would so "substantially reduce flexibility in terms of the types, prices, and number of private sellers of health insurance" that companies like WellPoint might need to "be considered part of the federal budget."
With so large a chunk of the economy and medical practice itself in Washington's hands, quality will decline. Ultimately, "our capacity to innovate and develop new therapies would suffer most of all," as Harvard Medical School Dean Jeffrey Flier recently wrote in our pages. Take the $2 billion annual tax—rising to $3 billion in 2018—that will be leveled against medical device makers, among the most innovative U.S. industries. Democrats believe that more advanced health technologies like MRI machines and drug-coated stents are driving costs too high, though patients and their physicians might disagree.
"The Senate isn't hearing those of us who are closest to the patient and work in the system every day," Brent Eastman, the chairman of the American College of Surgeons, said in a statement for his organization and 18 other speciality societies opposing ObamaCare. For no other reason than ideological animus, doctor-owned hospitals will face harsh new limits on their growth and who they're allowed to treat. Physician Hospitals of America says that ObamaCare will "destroy over 200 of America's best and safest hospitals."
• Blowing up the federal fisc. Even though Medicare's unfunded liabilities are already about 2.6 times larger than the entire U.S. economy in 2008, Democrats are crowing that ObamaCare will cost "only" $871 billion over the next decade while fantastically reducing the deficit by $132 billion, according to CBO.
Yet some 98% of the total cost comes after 2014—remind us why there must absolutely be a vote this week—and most of the taxes start in 2010. That includes the payroll tax increase for individuals earning more than $200,000 that rose to 0.9 from 0.5 percentage points in Mr. Reid's final machinations. Job creation, here we come.
Other deceptions include a new entitlement for long-term care that starts collecting premiums tomorrow but doesn't start paying benefits until late in the decade. But the worst is not accounting for a formula that automatically slashes Medicare payments to doctors by 21.5% next year and deeper after that. Everyone knows the payment cuts won't happen but they remain in the bill to make the cost look lower. The American Medical Association's priority was eliminating this "sustainable growth rate" but all they got in return for their year of ObamaCare cheerleading was a two-month patch snuck into the defense bill that passed over the weekend.
The truth is that no one really knows how much ObamaCare will cost because its assumptions on paper are so unrealistic. To hide the cost increases created by other parts of the bill and transfer them onto the federal balance sheet, the Senate sets up government-run "exchanges" that will subsidize insurance for those earning up to 400% of the poverty level, or $96,000 for a family of four in 2016. Supposedly they would only be offered to those whose employers don't provide insurance or work for small businesses.
As Eugene Steuerle of the left-leaning Urban Institute points out, this system would treat two workers with the same total compensation—whatever the mix of cash wages and benefits—very differently. Under the Senate bill, someone who earned $42,000 would get $5,749 from the current tax exclusion for employer-sponsored coverage but $12,750 in the exchange. A worker making $60,000 would get $8,310 in the exchanges but only $3,758 in the current system.
For this reason Mr. Steuerle concludes that the Senate bill is not just a new health system but also "a new welfare and tax system" that will warp the labor market. Given the incentives of these two-tier subsidies, employers with large numbers of lower-wage workers like Wal-Mart may well convert them into "contractors" or do more outsourcing. As more and more people flood into "free" health care, taxpayer costs will explode.
• Political intimidation. The experts who have pointed out such complications have been ignored or dismissed as "ideologues" by the White House. Those parts of the health-care industry that couldn't be bribed outright, like Big Pharma, were coerced into acceding to this agenda. The White House was able to, er, persuade the likes of the AMA and the hospital lobbies because the federal government will control 55% of total U.S. health spending under ObamaCare, according to the Administration's own Medicare actuaries.

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Associated Press

Sen. Ben Nelson

Others got hush money, namely Nebraska's Ben Nelson. Even liberal Governors have been howling for months about ObamaCare's unfunded spending mandates: Other budget priorities like education will be crowded out when about 21% of the U.S. population is on Medicaid, the joint state-federal program intended for the poor. Nebraska Governor Dave Heineman calculates that ObamaCare will result in $2.5 billion in new costs for his state that "will be passed on to citizens through direct or indirect taxes and fees," as he put it in a letter to his state's junior Senator.

So in addition to abortion restrictions, Mr. Nelson won the concession that Congress will pay for 100% of Nebraska Medicaid expansions into perpetuity. His capitulation ought to cost him his political career, but more to the point, what about the other states that don't have a Senator who's the 60th vote for ObamaCare?

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"After a nearly century-long struggle we are on the cusp of making health-care reform a reality in the United States of America," Mr. Obama said on Saturday. He's forced to claim the mandate of "history" because he can't claim the mandate of voters. Some 51% of the public is now opposed, according to National Journal's composite of all health polling. The more people know about ObamaCare, the more unpopular it becomes.
The tragedy is that Mr. Obama inherited a consensus that the health-care status quo needs serious reform, and a popular President might have crafted a durable compromise that blended the best ideas from both parties. A more honest and more thoughtful approach might have even done some good. But as Mr. Obama suggested, the Democratic old guard sees this plan as the culmination of 20th-century liberalism.
So instead we have this vast expansion of federal control. Never in our memory has so unpopular a bill been on the verge of passing Congress, never has social and economic legislation of this magnitude been forced through on a purely partisan vote, and never has a party exhibited more sheer political willfulness that is reckless even for Washington or had more warning about the consequences of its actions.
These 60 Democrats are creating a future of epic increases in spending, taxes and command-and-control regulation, in which bureaucracy trumps innovation and transfer payments are more important than private investment and individual decisions. In short, the Obama Democrats have chosen change nobody believes in—outside of themselves—and when it passes America will be paying for it for decades to come.