Congress Veers Left on Health Care
The Baucus bill has been rejected by Democrats.

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By KIMBERLEY A. STRASSEL

Senate Finance Committee Chairman Max Baucus unveiled his long-awaited health-care compromise this week to the sound of one hand clapping. You wouldn't know it from the White House, which soothingly spun the Baucus bill as a breakthrough on the forced march to reform. We were told it was a good thing that the only person in Washington who liked Max Baucus's bill was . . . Max Baucus. That everybody was unhappy meant we were getting somewhere. What matters is that the Senate now has a "common sense" product to serve as a "building block" for bipartisan legislation. Uh-huh.

Mr. Obama has the same problem he's had since the start, only magnified. That would be the left wing of his party, which is about to rip up the Baucus bill, making an ugly product grotesque. He also has the same Republican Party, only now it's so alienated as to uniformly oppose the effort. And he has the same crowd of vulnerable Senate and House Democrats who continue to pay as much attention to the dismal polls as they do to their president. Nothing new to see here, folks. Move along.

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Associated Press

Montana Senator Max Baucus
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Mr. Baucus took until mid-September to release his bill because he spent months coaxing Republicans. This wasn't done out of kindness, but political necessity. The other congressional bills were so extreme as to cause a Democratic revolt. If Mr. Baucus could get buy-ins from Sens. Chuck Grassley, Mike Enzi and Olympia Snowe, he would give nervous Democrats cover.

Instead, our bipartisan White House grew weary of the bipartisan process and pressured Mr. Baucus to produce. He jettisoned his colleagues and pushed out a product that Messrs. Grassley and Enzi promptly condemned. The White House did such a good job of suggesting that Ms. Snowe was its GOP patsy—a Republican who'd vote for a ham sandwich, if only they asked—that even the miffed Maine senator has stepped back.

The result is two-fold. With no, or little, GOP support, the only way Mr. Baucus can pry his bill out of committee is to allow the left to have its way. The White House knows this, which is why the president—despite seizing on the Baucus legislation in his speech last week—is already abandoning the finance chief and his bill to the tender mercies of West Virginia's Jay Rockefeller and New York's Chuck Schumer. The White House wants a bill, any bill, and this bloc now holds all the votes in committee. Pity Mr. Baucus, who just got used.

All the more so, given that the finance chief liberal-ed up his bill—with new subsidies, new taxes, new regulation—specifically to make nice to his committee's left. Rockefeller and Co. have condemned the $775 billion legislation as too skimpy and not tough enough. By the time they are done amending, the bill will be flirting with a $1 trillion price tag, contain a raft of new taxes, and a string of new regulations. Mr. Rockefeller may be savvy enough to hold back on adding a public option, but the bill that emerges will be as liberal as he dares.

Daring is the word, as the other result of ditching the GOP is that the Blue Dogs and swing-state senators are on their own. The Baucus bill will come out looking more like the other toxic Democratic products than not, and it will now, finally, contain the unpleasant details for public review. The political risks are immense.

Does Arkansas Sen. Blanche Lincoln, up for re-election next year, with an upside-down approval rating, vote to proceed with a trillion in spending on the back of a $9 trillion deficit over the next decade? Does Florida's Bill Nelson vote to stick it to his state's Medicare Advantage participants? Does Colorado's Michael Bennet vote for billions in new health-care user taxes, or penalties on the uninsured? This is where the health-care rubber meets the road, and Majority Leader Harry Reid has but a few feet of pavement. With Ted Kennedy's seat unfilled, and Robert Byrd an uncertain presence, 60 cloture votes are not guaranteed.

What has changed is Mr. Obama's determination to push a bill through, regardless of what his party, or the public, thinks. The White House will make the case to waverers that the political fallout of a health-care failure will be worse than backlash that comes with voting for a bill. Maybe. Behind that is the further threat that Dems will go this alone, via 50-vote reconciliation, if necessary.

They'd like to avoid it, as reconciliation will be messy, uncertain and carry political fallout. Yet if the Baucus bill has done anything, it has brought the White House further down this road. The president may yet regret he didn't hit the restart button.

Republicans and Democrats in Congress

Why can't they just get on?

America harks back to those bipartisan idylls of yore

CONGRESS and President Barack Obama return to work in Washington on September 8th, after Labour Day. But a summer of golfing has done nothing to improve the nation’s political temper. Democrats and Republicans are in the throes of one of their periodic shouting matches about who is to blame for the gridlock on Capitol Hill and, more broadly, about the merits and flaws of bipartisanship. “Now more than ever,” yelled a representative recent headline on salon.com, an online magazine, “bipartisanship is for suckers.”

Stoking the liberal side of this debate is Congress’s failure to make progress on health-care reform. A cacophony of voices is urging Mr Obama to stop seeking compromise with the Republicans, which seems wasted effort, and use Democratic votes alone to ram his flagship domestic project through Congress. It is not just the netroots who are up in arms: on August 30th an editorial in the New York Times concluded “with considerable regret” that the ideological split between the parties was too wide to bridge.

The White House is signalling impatience too. Mr Obama’s press spokesman, Robert Gibbs, complained this week that Mike Enzi of Wyoming, one of the three Republicans on the Senate Finance Committee who are supposed to be hammering out a compromise on health with three Democrats in Senator Max Baucus’s “gang of six”, had “turned over his cards on bipartisanship” and walked away. Mr Gibbs was responding to a radio broadcast in which Mr Enzi had excoriated the Democrats’ reform plans. If Mr Gibbs is right, the outlook for bipartisan reform has indeed darkened. The “gang of six” had seemed the likeliest forum to produce a bill that might attract cross-party support in the Senate.

For the moment, however, Mr Obama gives no hint of abandoning his (stated) preference for bipartisan lawmaking on health, climate change and other matters. This dispirits those Democrats who yearned, after eight years of George Bush, for audacious change. These loyalists are dismayed by Mr Obama’s recent softening of his insistence that any health reform must include a “public option” (under which private insurers would face competition from a government-run scheme). But Mr Obama’s retreat on this suggests that he is not yet convinced by the notion of driving through controversial legislation on Democratic votes alone, even if he could overcome the doubts of the Democrats’ own fiscal conservatives. Weighty calculations of principle, presentation and practical politics lean the other way.

The principle at stake is not only the promise Mr Obama made at his inauguration to transcend “petty grievances” and “worn-out dogmas”. Almost every president says something like that. A long-established idea in American politics also holds that big laws—the sort that alter the face of the country—are likelier to endure if they collect support from both parties. That was the thinking behind great bipartisan measures such as the creation of Social Security in 1935 and of Medicare in 1965, the Civil Rights Act of 1964 and—in 1986—the tax reform engineered by Ronald Reagan and his ideological opposite, Speaker Tip O’Neill. Mr Obama says he wants to stop America from being bankrupted by health bills and the planet from frying. Those are causes big enough to make it worth travelling the extra mile to sign up the other party, which will one day return to government.

As for presentation, America has just buried Ted Kennedy, lionised now in a thousand editorials for having been, among other virtuous things, a shining exemplar of bipartisanship. Americans seemed to admire a senator whose firm stand on the left of the Democratic Party did not stop him from making Republican friends and cutting bargains with them in order to make laws—a talent that persuaded a veteran conservative pundit, George Will, to declare him the most consequential Kennedy brother. After a summer of ugly tribal arguments in town-hall meetings on health care, politicians may feel the need to pay lip service, at least, to the idea of bipartisanship.

And yet in the Washington think-tanks the passing of Ted Kennedy has revived a different debate. Is bipartisanship still feasible in today’s America? Is it even desirable? Pietro Nivola, a senior fellow at the Brookings Institution, has doubts on both counts. Grand bargains are harder in an age when both parties, but especially the Republicans, have become more ideological and cohesive. Congress no longer contains legions of conservative Democrats from the South or moderate Republicans from the north-east willing to make common cause—or laws. The gerrymandering of electoral districts has slashed the number of swing seats, forcing candidates to nurture their wild-eyed base, rather than reach out to moderates, to win their primaries. Religious polarisation has sharpened the gap between the parties, sucking believers into the Republican camp and driving the secular to the Democrats.

During the raucous fight over health care, Democrats have affected particular indignation over the remark in July of a Republican senator, Jim DeMint of South Carolina, that “if we’re able to stop Obama on this, it will be his Waterloo. It will break him.” How very non-bipartisan. And yet nothing could be more natural than for an opposition to scheme to thwart the governing party. Mr Nivola argues that rather than wringing their hands, Americans should welcome the fact that their parties have become aggressively opposed. “As in Europe,” he says, “the majority rules and the minority has to bide its time.” This produces clearer choices for voters and makes it easier to hold governments to account. Nothing wrong with that.

Unless, perhaps, you are the one who is going to be held to account. As anxious Democrats resume work next week, even his allies admit that Mr Obama has had a torrid summer. His approval rating has fallen from about 70% at the time of his inauguration to around 50%. Independents in particular seem to be losing faith. Health-care reform has taken a bashing. By mid-August only 46% of Americans approved of Mr Obama’s handling of it, down from 57% at the end of April. Americans understandably doubt whether any of the bills before Congress can cut costs and extend coverage at the same time. If health reform fails, energy legislation will falter too.

These are not circumstances in which Mr Obama will rush to heed the advice of those who want the Democrats to go it alone. White House aides say only that when the president returns to work he will be “very active”. He is scheduled to address a joint session of Congress on health care next Wednesday. As for the public option, it seems that he will still not insist on it if that puts off Republicans. Besides, if there is comfort for the president in the polls, it is last month’s finding by the Pew Research Centre that a growing proportion of Americans (29%) blame the Republican leadership rather than Mr Obama (17%) for their failure to work together. If nothing else, bipartisanship has always been an excellent way for presidents to spread the blame in case things go wrong.

Congress In Fantasyland

by Richard W. Rahn

If Congress suddenly required every car and truck in America (all 250 million of them) to be immediately destroyed and replaced with new cars and trucks that got better gas mileage, would the country be worse off or better off? Those members of Congress who voted for the "cash for clunkers" program would probably say "better off," even though a perfectly good auto and truck stock would be destroyed.

The congressional clunker caucus would say millions of workers would be employed to replace all of the existing cars and trucks. Yes, that would be true, but everyone else would be poorer. Those who had to buy a new car would have less money to spend on everything else, which would mean fewer jobs in the rest of the economy -- more autoworkers but fewer farmers, teachers and medical researchers -- not a good trade-off.

Congress would likely respond by proposing a tax credit for the purchase of the new car. The tax credit could only be paid for by higher taxes now or in the future, which means people would be worse off because of the dead weight loss of collecting taxes in addition to the amount actually collected.

Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth.

More by Richard W. Rahn

Members of Congress would then say that we are saving gasoline by having a more efficient auto fleet -- which ignores the fact that building a new car takes far more resources, including petroleum, than could possibly be saved by the gain of additional miles per gallon.

Congressional "logic" could also be applied to housing.

Why not knock down all houses built in America before 2000 and replace them with new and more energy-efficient houses? Wait -- we already evidenced the results of that experiment -- it happened in New Orleans. Rather than the government directly knocking down the houses, Hurricane Katrina did it for us. Are the people of New Orleans better off or worse off because of Katrina? Are all of the American taxpayers who footed much of the rebuilding cost -- hundreds of billions of dollars -- better off or worse off because of Katrina?

Many in Congress argue that the reason New Orleans is still a mess is because of federal, state and local government mismanagement and corruption. Yes, but now don't they want the government to run the health care system? And these folks are telling us that their new medical system will cover more people, will cost less, give us better care and not add to the budget deficit -- hmmm. Fantasyland!

Members of Congress and the Obama administration keep telling us that the "new health care system," the "cap-and-trade" energy program, "clunkers for cash" and the "stimulus" program can all be paid for by taxing the rich, i.e., the top 1 percent of income earners. Let's check the math.

The Congressional Budget Office projects a total additional deficit of approximately $4.9 trillion dollars during President Obama's first term (2009-2012). Currently, the top 1 percent of taxpayers pay 40 percent of the tax, or $450 billion a year, or approximately $1.8 trillion dollars during the next four years, leaving a $3.1 trillion hole. Increasing the tax rate on those high earners to 100 percent might yield an additional $1.5 trillion the first year, but this will only work for the first year. Most people, after being taxed 100 percent on their income, will quit work and/or put their investments in nontaxable entities, such as tax-free local government bonds.

It is also not mathematically possible to take care of all the new spending by increasing taxes on the top 5 percent of taxpayers (those making $160,000 or more annually) who already pay 61 percent of the federal tax (or $676 billion per year). Most of these people are now paying close to the revenue maximizing rate, which means that any increase in their tax rate is unlikely over the long run to bring in much more tax revenue.

Quite simply, upper-income people have options. History shows that when tax rates are raised, many will choose to work less (leisure is nontaxable), retire earlier than they had planned and save and invest less in taxable, productive activities. Those making more than $160,000 per year would need to have their taxes roughly tripled to take care of just this year's deficit. (One merely has to look at the tax evasion practiced by the chairman of the congressional tax writing committee, the secretary of the Treasury and the former majority leader, et al. at today's tax rates to know that they and their colleagues, as well as most everyone else, will find either legal or illegal ways to avoid paying the tax.)

Those who do not live in Fantasyland understand that the only options are:

• To greatly increase taxes on middle- and lower-income groups (a political nonstarter).

• To "fund" all of the new spending by selling bonds to the private market at much higher interest rates (thus sucking out private capital and increasing the cost of homeownership, which will lead to slower growth and higher unemployment).

• To have the central bank (the Fed) buy the new debt (leading to higher rates of inflation, making everyone poorer).

• Or for the government to act responsibly and reduce spending.

There are real costs to living in Fantasyland.

Congress buys 3 private jets for $200 million

by Ed Morrissey

Remember when Congress erupted in outrage over the arrival in Washington DC of the CEOs of the three major American automakers in private jets? The bumbling public relations of the Big Three gave elected officials an opportunity to indulge in populist spleen-venting at rich fat cats and their greed. Public pressure pushed the automakers to dump their private fleets of corporate jets and focus belt-tightening in the executive suites as well as on the manufacturing floor.

Who knew that Congress merely wanted to undercut price on their own purchase of private jets?

Last year, lawmakers excoriated the CEOs of the Big Three automakers for traveling to Washington, D.C., by private jet to attend a hearing about a possible bailout of their companies.

But apparently Congress is not philosophically averse to private air travel: At the end of July, the House approved nearly $200 million for the Air Force to buy three elite Gulfstream jets for ferrying top government officials and Members of Congress.

The Air Force had asked for one Gulfstream 550 jet (price tag: about $65 million) as part of an ongoing upgrade of its passenger air service.

But the House Appropriations Committee, at its own initiative, added to the 2010 Defense appropriations bill another $132 million for two more airplanes and specified that they be assigned to the D.C.-area units that carry Members of Congress, military brass and top government officials.

Normally, that would be considered an earmark. However, since Appropriations merely expanded a line item instead of creating one, it didn’t require the member to identify him/herself. Instead, the jet-setter will remain anonymous — and Congress as a whole can take the blame for passing it.

How about it, America? Does this Congress need three more private jets, or even one? Should they not fly commercial like the rest of us? Considering the massive deficits this administration and the Democrats in Congress now run — much worse than anything remotely imagined at GM, Chrysler, or Ford — should they not hold themselves to the standard they dramatically demanded from the CEOs of the automakers last November?

A Reckless Congress

Democrats want to ram through one of the greatest raids on private income and business in American history.

Say this about the 1,018-page health-care bill that House Democrats unveiled this week and that President Obama heartily endorsed: It finally reveals at least some of the price of the reckless ambitions of our current government. With huge majorities and a President in a rush to outrun the declining popularity of his agenda, Democrats are bidding to impose an unrepealable European-style welfare state in a matter of weeks.

Mr. Obama's February budget provided the outline, but the House bill now fills in the details. To wit, tax increases that would take U.S. rates higher even than most of Europe. Yet even those increases aren't nearly enough to finance the $1 trillion in new spending, which itself is surely a low-ball estimate. Meanwhile, the bill would create a new government health entitlement that will kill private insurance and lead to a government-run system.

Hyperbole? That's what people said when we warned about this last fall in "A Liberal Supermajority," but even we underestimated the ideological willfulness of today's national Democrats. Consider only a few of the details:

A huge new income surtax. The bill's main financing comes from another tax increase on top of the increase already scheduled for 2011 under Mr. Obama's budget. The surtax starts at one percentage point for adjusted gross income above $350,000 in 2011, rising to two points in 2013; a 1.5 point surtax at incomes above $500,000, rising to three in 2013; and a whopping 5.4 percentage points in 2011 and beyond on incomes above $1 million.

This would raise the top marginal federal tax rate back to roughly 47% or 48%, if you include the Medicare tax and the phase-out of certain deductions and exemptions. With the current top rate at 35%, this would be the largest rate increase outside the Great Depression or world wars.

The average U.S. top combined state-federal marginal tax rate would hit about 52%. This would be higher than in all but three (Denmark, Sweden, Belgium) of the 30 countries measured by the OECD. According to the nearby table compiled by the Heritage Foundation, taxpayers in at least five U.S. states would pay higher marginal rates even than Sweden. South Korea, which Democrats worry is stealing American jobs, would be able to grab even more as its highest rate is a far more competitive 38.5%.

House Democrats say they deserve credit for being honest about the tax increases needed to fund their ambitions. But then they also claim that this surtax would raise $544 billion in new revenue over 10 years. America's millionaires aren't that stupid; far fewer of them will pay these rates for very long, if at all. They will find ways to shelter income, either by investing differently or simply working less. Small businesses that pay at the individual rate will shift to pay the 35% corporate rate. When the revenue doesn't materialize, Democrats will move to soak the middle class with a European-style value-added tax.

Phony numbers. Democrats will have to come up with something, because even the surtax puts their bill at least $300 billion short of honest financing. The public insurance "option" doesn't even begin until 2013 and the costs are heavily weighted toward the later years, but the tax hikes start in 2011. So under Congress's 10-year budget window, the House bill is able to pay for seven years of spending with nine years of taxes. Andy Laperriere of the ISI Group estimates the bill would add $95 billion to the deficit in 2019 alone.

Then there's yesterday's testimony, from Congressional Budget Office (CBO) Director Doug Elmendorf, that ObamaCare's cost "savings" are an illusion. Mr. Obama claims government can cover more people and pay less to do it. But Mr. Elmendorf told the Senate Finance Committee that "In the legislation that has been reported we don't see the sort of fundamental changes that would be necessary to reduce the trajectory of federal spending by a significant amount. And on the contrary, the legislation significantly expands the federal responsibility for health-care costs."

Further on the public plan: "It raises the amount of activity that is growing at this unsustainable rate."

No matter, Speaker Nancy Pelosi is whisking the bill through House committees even before CBO has had a chance to score it in detail. As Wisconsin Republican Paul Ryan put it to us, "We will not have read it, and we will not have a score of it, but we will have passed it out of committee."

A new payroll tax. Unemployment is at 9.5% and rising, but Democrats will nonetheless impose a new eight percentage point payroll tax on employers who don't provide health insurance for employees. This is on top of the current 15% payroll tax, and in addition to a new 2.5-percentage point tax on individuals who don't buy health insurance. This means that any employer with more than $400,000 in payroll would have to pay at least 25% above the salary to hire someone. Result: Many fewer new jobs, with a higher structural jobless rate, much as Europe has experienced as its welfare states have expanded.

Other new taxes, including an as yet undetermined levy on private health plans. This tax, which Democrats say could raise $100 billion or so, would make it even harder for private plans to compete with the government plan, which would already benefit from government subsidies and lower capital costs. For good measure, the House bill also gets the ball rolling on tax increases on foreign-source corporate income.

We could go on, and we will in coming days. But the most remarkable quality of this health-care exercise is its reckless disregard for economic and fiscal reality. With the economy still far from a healthy recovery, and the federal fisc already nearly $2 trillion in deficit, Democrats want to ram through one of the greatest raids on private income and business in American history. The world is looking on, agog, and wondering why the United States seems intent on jumping off this cliff.

Burned By a Tobacco Bill

By George Will

WASHINGTON -- Politicians have extraordinary shoulder joints that enable them to pat themselves on the back, and last week the president, a master of that calisthenic, performed it in the Rose Garden. His subject -- aside from himself, as usual -- was the bill by which Congress authorized the Food and Drug Administration to regulate tobacco. The president called this "a bill that truly defines change in Washington" and "changes the way Washington works and who Washington works for."

Our leaders are often wrong but rarely so precisely wrong. In two important particulars the bill is a crystalline example of Washington business as usual -- the protection of the strong. The bill was supported by America's biggest tobacco company and by the Democratic Party's fountain of funds, the trial bar.

Congress could ban cigarettes, therefore it could ban tobacco advertising. Instead, tobacco advertising and promotions will be even more severely curtailed. These restrictions merit a constitutional challenge. Although commercial speech does not receive full First Amendment protection, Congress should not be allowed to effectively prohibit truthful communication about a legal product. Philip Morris, however, can live -- indeed, can flourish -- with the new restrictions on the marketing measures by which less powerful companies might threaten its dominance. And lest courts conclude that companies cannot be sued for behavior (selling cigarettes) governed, hence authorized, by a regulatory body, the bill stipulates that it shall not be construed to limit "the liability of any person under the product liability law of any state."

Government policy regarding tobacco, as regarding so much else, is contradictory and unlovely. Nevertheless, it has been, on balance, a success: Americans are behaving much more sensibly.

Before the surgeon general declared tobacco addictive (1988) and carcinogenic (1964), before a character in a 1906 O. Henry story asked, "Say, sport, have you got a coffin nail on you?" people intuitively understood that inhaling smoke is unhealthy. Smoking is addictive (although there are about as many ex-smokers as smokers), sickening, often fatal and usually childish: Ninety percent of all smokers start by age 18; few start after 21. But death and intelligence cost the companies 6,000 customers a day, so that many new smokers must be made daily just to keep up.

Ironies abound. The February expansion of the State Children's Health Insurance Program is supposed to be financed by increased tobacco taxes, so this health care depends on an ample and renewable supply of smokers. State governments, increasingly addicted to tobacco tax revenues, face delicate price calculations: They want to raise their regressive tobacco taxes (smokers are disproportionately low income and poorly educated) to just below where smokers are driven to quit.

Governments cannot loot tobacco companies that do not flourish. In a 1998 settlement, 46 states conspired to seize $206 billion from companies selling legal tobacco products made from a commodity subsidized by the governments that subsidize treatment of tobacco-related illnesses. The dubious premise of the settlement was that smoking costs governments substantial sums. Actually, tobacco is the most heavily taxed consumer good (Rhode Island's is $3.46 per pack) and the accurate actuarial assumptions of public and private pension plans are that premature deaths of smokers will save billions in payments.

In the early 1950s, the sponsor of anchorman John Cameron Swayze's "Camel News Caravan" on NBC television required him to have a lit cigarette constantly visible. Today smokers are pariahs in a country the Father of which was a tobacco farmer. Someday the ashtray may be as anachronistic as the spittoon, but fear of death may be a milder deterrent to smoking than is the fact that smoking is dumb and declasse. Dumb? Would you hire a smoker, who must be either weak-willed or impervious to evidence? Declasse? Twenty years ago, California cut smoking 17 percent with commercials such as: "I tried it twice and I, ah, got all red in the face and I couldn't inhale and I felt like a jerk and, ah, never tried it again, which is the same as what happened to me with sex."

Three decades ago, public outrage killed an automobile model (Ford's Pinto) whose design defects allegedly caused 59 deaths. Yet every year tobacco kills more Americans than did World War II -- more than AIDS, cocaine, heroin, alcohol, vehicular accidents, homicide and suicide combined.

In the time it takes to read this column, three Americans will die of smoking-related illnesses. If you tarry to savor the column's lovely prose, four will die, so read fast.

Waterboarding

Congress and Waterboarding

Nancy Pelosi was an accomplice to 'torture.'

KARL ROVE

Someone important appears not to be telling the truth about her knowledge of the CIA's use of enhanced interrogation techniques (EITs). That someone is Speaker of the House Nancy Pelosi. The political persecution of Bush administration officials she has been pushing may now ensnare her.

Here's what we know. On Sept. 4, 2002, less than a year after 9/11, the CIA briefed Rep. Porter Goss, then House Intelligence Committee chairman, and Mrs. Pelosi, then the committee's ranking Democrat, on EITs including waterboarding. They were the first members of Congress to be informed.

In December 2007, Mrs. Pelosi admitted that she attended the briefing, but she wouldn't comment for the record about precisely what she was told. At the time the Washington Post spoke with a "congressional source familiar with Pelosi's position on the matter" and summarized that person's comments this way: "The source said Pelosi recalls that techniques described by the CIA were still in the planning stage -- they had been designed and cleared with agency lawyers but not yet put in practice -- and acknowledged that Pelosi did not raise objections at the time."

When questions were raised last month about these statements, Mrs. Pelosi insisted at a news conference that "We were not -- I repeat -- were not told that waterboarding or any of these other enhanced interrogation methods were used." Mrs. Pelosi also claimed that the CIA "did not tell us they were using that, flat out. And any, any contention to the contrary is simply not true." She had earlier said on TV, "I can say flat-out, they never told us that these enhanced interrogations were being used."

The Obama administration's CIA director, Leon Panetta, and Mr. Goss have both disputed Mrs. Pelosi's account.

In a report to Congress on May 5, Mr. Panetta described the CIA's 2002 meeting with Mrs. Pelosi as "Briefing on EITs including use of EITs on Abu Zubaydah, background on [legal] authorities, and a description of the particular EITs that had been employed." Note the past tense -- "had been employed."

Mr. Goss says he and Mrs. Pelosi were told at the 2002 briefing about the use of the EITs and "on a bipartisan basis, we asked if the CIA needed more support from Congress to carry out its mission." He is backed by CIA sources who say Mr. Goss and Mrs. Pelosi "questioned whether we were doing enough" to extract information.

We also know that Michael Sheehy, then Mrs. Pelosi's top aide on the Intelligence Committee and later her national security adviser, not only attended the September 2002 meeting but was also briefed by the CIA on EITs on Feb. 5, 2003, and told about a videotape of Zubaydah being waterboarded. Mr. Sheehy was almost certain to have told Mrs. Pelosi. He has not commented publicly about the 2002 or the 2003 meetings.

So is the speaker of the House lying about what she knew and when? And, if so, what will Democrats do about it?

If Mrs. Pelosi considers the enhanced interrogation techniques to be torture, didn't she have a responsibility to complain at the time, introduce legislation to end the practices, or attempt to deny funding for the CIA's use of them? If she knew what was going on and did nothing, does that make her an accessory to a crime of torture, as many Democrats are calling enhanced interrogation?

Senate Judiciary Chairman Pat Leahy wants an independent investigation of Bush administration officials. House Judiciary Chairman John Conyers feels the Justice Department should investigate and prosecute anyone who violated laws against committing torture. Are these and other similarly minded Democrats willing to have Mrs. Pelosi thrown into their stew of torture conspirators as an accomplice?

It is clear that after the 9/11 attacks Mrs. Pelosi was briefed on enhanced interrogation techniques and the valuable information they produced. She not only agreed with what was being done, she apparently pressed the CIA to do more.

But when political winds shifted, Mrs. Pelosi seems to have decided to use enhanced interrogation as an issue to attack Republicans. It is disgraceful that Democrats who discovered their outrage years after the fact are now braying for disbarment of the government lawyers who justified EITs and the prosecution of Bush administration officials who authorized them. Mrs. Pelosi is hip-deep in dangerous waters, and they are rapidly rising.

Mr. Rove is the former senior adviser and deputy chief of staff to President George W. Bush.

What Congress Knew

Congress got 40 briefings from the CIA on interrogations.

On September 4, 2002, Porter Goss, then the Chairman of the House Permanent Select Committee on Intelligence, and Nancy Pelosi, the ranking Democratic member, were given a classified briefing by the CIA on what the Agency calls "enhanced interrogation techniques," or, in persistent media parlance, "torture." In particular, the CIA briefed the members on the use of these techniques on Abu Zubaydah, a high-ranking al Qaeda operative captured in Pakistan the previous March.

AP

Abu Zubaydah was a name the future Speaker was already familiar with. That spring, information obtained from the terrorist had the FBI and other government agencies scrambling to prevent possible attacks on the Statue of Liberty and the Brooklyn Bridge. It wasn't clear whether Abu Zubaydah was being truthful. "He is also very skilled at avoiding interrogation," Ms. Pelosi was quoted in Time magazine. "He is an agent of disinformation." It is precisely for such reasons that the CIA resorted to its enhanced techniques later that year, after gaining legal authorization.

These days, Speaker Pelosi insists she heard and saw no evil. "We were not -- I repeat -- were not told that waterboarding or any of these other enhanced interrogation methods were used," she told reporters late last month. "What they did tell us is that they had . . . the Office of Legal Counsel opinions [and] that they could be used, but not that they would."

That doesn't square with the memory of Mr. Goss, who has noted that "we were briefed, and we certainly understood what the CIA was doing," adding that "Not only was there no objection, there was actually concern about whether the agency was doing enough."

From the CIA

• Read the documents provided by the Obama Administration's Director of National Intelligence to Congress on the CIA briefings attended by various Members.

Ms. Pelosi's denials are also difficult to square with a chronology of 40 CIA briefings to Congressional Members compiled by the CIA and released this week by Director Leon Panetta. For the September 4, 2002 meeting, the CIA's summary of the discussion reads: "Briefing on EITs including use of EITs on Abu Zubaydah, background on authorities, and a description of the particular EITs that had been employed." We emphasize the verb tense to underscore the contradiction with Ms. Pelosi's categorical denials of last month.

Ms. Pelosi was replaced by Jane Harman as the Committee's ranking member, but the bipartisan briefings continued. On February 4, 2003, Senators Pat Roberts and Jay Rockefeller of the Senate Select Committee on Intelligence were given a briefing in which "EITs [were] 'described in considerable detail,' including 'how the water board was used.' The process by which the techniques were approved by DoJ was also raised." The document also adds that Mr. Rockefeller, the Committee's ranking Democrat, was later given an "individual briefing."

Nor was that the only time Mr. Rockefeller, who chaired the Committee from 2007 to 2009, heard from the CIA. The West Virginian was briefed at least 12 times more about interrogation techniques, legal authorities and other aspects of the program. The last, in June 2008, was offered to 10 members of the Senate Intelligence Committee and covered "discussion of EITs and the OLC [Office of Legal Counsel] opinions. Specific mentions of waterboarding numerous time."

Yet in October 2008, following a Washington Post report on the existence of the OLC memos, Mr. Rockefeller disclaimed any knowledge of the opinions. "If White House documents exist that set the policy for the use of coercive techniques such as waterboarding, those documents have been kept from the committee," said Mr. Rockefeller. "That is unacceptable, and represents the latest example of the Bush Administration withholding critical information from Congress and the American people in an attempt to limit our oversight of sensitive intelligence collection activities."

Amusingly, or almost, Senator Rockefeller's denial is flatly contradicted by his own report on the subject released last month, which notes that "On May 19, 2008, the Department of Justice and the Central Intelligence Agency provided the Committee with access to all opinions and a number of other documents prepared by the Office of Legal Counsel . . . concerning the legality of the CIA's detention and interrogation program. Five of these documents provided addressed the use of waterboarding."

So much for the canard that the Bush Administration didn't keep Congress informed. But Congressional Democrats are being equally disingenuous when they pretend they could do nothing about what they were hearing from the CIA. Members could, and sometimes did, object to proposed CIA actions and could stop them in their tracks.

More importantly, Congress had the power of the purse. Pete Hoekstra, the House Committee's current ranking member, tells us there was "pretty bipartisan support for the authorization bills and the funding bills," at least until the issue blew wide in the pages of the press. Latter-day opponents of the interrogation techniques, he adds, "never used a tool that was available to them if they wanted to stop them."

We suspect a last line of Democratic defense will be that the Members privately objected to the practices and made their concerns known to the CIA. That seems to be the case with Ms. Harman, who wrote the CIA just days after she was first briefed saying the interrogation practices raised "profound policy questions" and that she was "concerned about whether these have been as rigorously examined as the legal questions." Ironically, Ms. Harman now finds herself a target on the left for the unrelated AIPAC non-scandal.

If there were other Members who objected strenuously to the techniques at the time, let's see their letters. Otherwise, perhaps the CIA should release whatever notes they kept of the briefings. Our guess is that's one pile of memos Speaker Pelosi & Co. aren't especially eager to declassify.

What Congress Knew

Congress got 40 briefings from the CIA on interrogations.

On September 4, 2002, Porter Goss, then the Chairman of the House Permanent Select Committee on Intelligence, and Nancy Pelosi, the ranking Democratic member, were given a classified briefing by the CIA on what the Agency calls "enhanced interrogation techniques," or, in persistent media parlance, "torture." In particular, the CIA briefed the members on the use of these techniques on Abu Zubaydah, a high-ranking al Qaeda operative captured in Pakistan the previous March.

AP

Abu Zubaydah was a name the future Speaker was already familiar with. That spring, information obtained from the terrorist had the FBI and other government agencies scrambling to prevent possible attacks on the Statue of Liberty and the Brooklyn Bridge. It wasn't clear whether Abu Zubaydah was being truthful. "He is also very skilled at avoiding interrogation," Ms. Pelosi was quoted in Time magazine. "He is an agent of disinformation." It is precisely for such reasons that the CIA resorted to its enhanced techniques later that year, after gaining legal authorization.

These days, Speaker Pelosi insists she heard and saw no evil. "We were not -- I repeat -- were not told that waterboarding or any of these other enhanced interrogation methods were used," she told reporters late last month. "What they did tell us is that they had . . . the Office of Legal Counsel opinions [and] that they could be used, but not that they would."

That doesn't square with the memory of Mr. Goss, who has noted that "we were briefed, and we certainly understood what the CIA was doing," adding that "Not only was there no objection, there was actually concern about whether the agency was doing enough."

From the CIA

• Read the documents provided by the Obama Administration's Director of National Intelligence to Congress on the CIA briefings attended by various Members.

Ms. Pelosi's denials are also difficult to square with a chronology of 40 CIA briefings to Congressional Members compiled by the CIA and released this week by Director Leon Panetta. For the September 4, 2002 meeting, the CIA's summary of the discussion reads: "Briefing on EITs including use of EITs on Abu Zubaydah, background on authorities, and a description of the particular EITs that had been employed." We emphasize the verb tense to underscore the contradiction with Ms. Pelosi's categorical denials of last month.

Ms. Pelosi was replaced by Jane Harman as the Committee's ranking member, but the bipartisan briefings continued. On February 4, 2003, Senators Pat Roberts and Jay Rockefeller of the Senate Select Committee on Intelligence were given a briefing in which "EITs [were] 'described in considerable detail,' including 'how the water board was used.' The process by which the techniques were approved by DoJ was also raised." The document also adds that Mr. Rockefeller, the Committee's ranking Democrat, was later given an "individual briefing."

Nor was that the only time Mr. Rockefeller, who chaired the Committee from 2007 to 2009, heard from the CIA. The West Virginian was briefed at least 12 times more about interrogation techniques, legal authorities and other aspects of the program. The last, in June 2008, was offered to 10 members of the Senate Intelligence Committee and covered "discussion of EITs and the OLC [Office of Legal Counsel] opinions. Specific mentions of waterboarding numerous time."

Yet in October 2008, following a Washington Post report on the existence of the OLC memos, Mr. Rockefeller disclaimed any knowledge of the opinions. "If White House documents exist that set the policy for the use of coercive techniques such as waterboarding, those documents have been kept from the committee," said Mr. Rockefeller. "That is unacceptable, and represents the latest example of the Bush Administration withholding critical information from Congress and the American people in an attempt to limit our oversight of sensitive intelligence collection activities."

Amusingly, or almost, Senator Rockefeller's denial is flatly contradicted by his own report on the subject released last month, which notes that "On May 19, 2008, the Department of Justice and the Central Intelligence Agency provided the Committee with access to all opinions and a number of other documents prepared by the Office of Legal Counsel . . . concerning the legality of the CIA's detention and interrogation program. Five of these documents provided addressed the use of waterboarding."

So much for the canard that the Bush Administration didn't keep Congress informed. But Congressional Democrats are being equally disingenuous when they pretend they could do nothing about what they were hearing from the CIA. Members could, and sometimes did, object to proposed CIA actions and could stop them in their tracks.

More importantly, Congress had the power of the purse. Pete Hoekstra, the House Committee's current ranking member, tells us there was "pretty bipartisan support for the authorization bills and the funding bills," at least until the issue blew wide in the pages of the press. Latter-day opponents of the interrogation techniques, he adds, "never used a tool that was available to them if they wanted to stop them."

We suspect a last line of Democratic defense will be that the Members privately objected to the practices and made their concerns known to the CIA. That seems to be the case with Ms. Harman, who wrote the CIA just days after she was first briefed saying the interrogation practices raised "profound policy questions" and that she was "concerned about whether these have been as rigorously examined as the legal questions." Ironically, Ms. Harman now finds herself a target on the left for the unrelated AIPAC non-scandal.

If there were other Members who objected strenuously to the techniques at the time, let's see their letters. Otherwise, perhaps the CIA should release whatever notes they kept of the briefings. Our guess is that's one pile of memos Speaker Pelosi & Co. aren't especially eager to declassify.

Why Congress Won't Investigate Wall Street

Republicans and Democrats would find themselves in the hot seat.

• By THOMAS FRANK

The famous Pecora Commission of 1933 and 1934 was one of the most successful congressional investigations of all time, an instance when oversight worked exactly as it should. The subject was the massively corrupt investment practices of the 1920s. In the course of its investigation, the Senate Banking Committee, which brought on as its counsel a former New York assistant district attorney named Ferdinand Pecora, heard testimony from the lords of finance that cemented public suspicion of Wall Street. Along the way, the investigations formed the rationale for the Glass-Steagall Act, the Securities Exchange Act, and other financial regulations of the Roosevelt era.

A new round of regulation is clearly in order these days, and a Pecora-style investigation seems like a good way to jolt the Obama administration into action. After all, the financial revelations of today bear a striking resemblance to those of 1933. In his own account of his investigation, Pecora described bond issues that were almost certainly worthless, but which 1920s bankers sold to uncomprehending investors anyway. He told of the bonuses which the bankers thereby won for themselves. He also told of the lucrative gifts banks gave to lawmakers from both political parties. And then he told of the banking industry's indignation at being made to account for itself. It regarded the outraged public, in Pecora's shorthand, as a "howling mob."

The idea of a new Pecora investigation is catching on, particularly, but not exclusively, on the left.

It's probably not going to happen, though, in the comprehensive way that it should. The reason is that understanding our problems, this time around, would require our political leaders to examine themselves.

The crisis today is not solely one of bank misbehavior. This is also about the failure of the regulators -- the Wall Street policemen who dozed peacefully as the crime of the century went off beneath the window.

We have all heard the official explanation for this failure, that "the structure of our regulatory system is unnecessarily complex and fragmented," in the soothing words of Treasury Secretary Tim Geithner. But no proper Pecora would be satisfied with such piffle. The system was not only complex, it was compromised and corrupted and thoroughly rotten even in the spots where its mandate was simple.

After all, we have for decades been on a national crusade to slash red tape and stifle regulators. Over the years, federal agencies have been defunded, their workers have grown dispirited, their managers, drawn in many cases from antiregulatory organizations, have seemed to care far more about industry than the public.

Consider in this connection the 2003 photograph, rapidly becoming an icon of the Bush years, in which James Gilleran, then the director of the Office of Thrift Supervision (it regulates savings and loan associations) can be seen in the company of several jolly bank industry lobbyists, holding a chainsaw to a pile of rule books. The picture not only tells us more about our current fix than would a thousand pages about overlapping jurisdictions; it also reminds us why we may never solve the problem of regulatory failure. To do so, we would have to examine the apparent subversion of the regulatory system by the last administration. And that topic is supposedly off limits, since going there would open the door to endless partisan feuding.

But it's not only Republicans who would feel the sting of embarrassment. Launching Pecora II would automatically raise this question: Whatever happened to the reforms put in place after the first go-round?

Now a different picture comes to mind. It's Bill Clinton in November of 1999, surrounded by legislators of both parties, giving a shout-out to his brilliant Treasury Secretary Larry Summers, and signing the measure that overturned Glass-Steagall's separation of investment from commercial banking. Mr. Clinton is confident about what he is doing. He knows the lessons of history, he talks glibly about "the new information-age global economy" that was the idol of deep thinkers everywhere in those days. "[T]he Glass-Steagall law is no longer appropriate to the economy in which we live," he says. "It worked pretty well for the industrial economy, which was highly organized, much more centralized, and much more nationalized than the one in which we operate today. But the world is very different."

It turns out the world hadn't changed much after all. But the Democratic Party sure had. And while today's chastened Democrats might be ready to reregulate the banks, they are no more willing to scrutinize the bad ideas of the Clinton years than Republicans are the bad ideas of the Bush years.

"We may now need to be reminded what Wall Street was like before Uncle Sam stationed a policeman at its corner," Pecora wrote in 1939, "lest, in time to come, some attempt be made to abolish that post."

Well, the time did come. The attempt was made. And we could use that reminder today.

U.S. Officials Signal No Need for More TARP Funds From Congress

U.S. Officials Signal No Need for More TARP Funds From Congress

April 20 (Bloomberg) -- Obama administration officials signaled there may be no need to request more financial-rescue funds from Congress as several banks plan to return taxpayer money and others are pushed to tap private markets first.

White House chief of staff Rahm Emanuel said while he had not seen results of stress tests on the 19 biggest banks, he believed “we won’t” have to get more money. Aide Lawrence Summers said “the first resort for more capital is going to the private markets,” by issuing new equity or swapping some liabilities into stock that dilutes other stakeholders.

The remarks yesterday indicate the administration isn’t girding for a battle with lawmakers who have warned that a popular outcry against aiding Wall Street means approval of an expansion of the $700 billion Troubled Asset Relief Program would be a challenge.

“We believe we have those resources available in the government as the final backstop to make sure that the 19 are financially viable and effective,” Emanuel said on ABC’s “This Week” program. He added that “we will be able to avoid” temporary nationalization of the weakest of the big banks.

Summers, National Economic Council director, said on NBC’s “Meet the Press” that “there’s the capacity to turn to the private market” first for firms needing more capital. The government can also deploy “if necessary” additional taxpayer cash, which is likely be buttressed “over time” by lenders “that are in the strongest position” of paying back U.S. money.

Scheduled Release

The stress tests are scheduled for release May 4, with the Federal Reserve and other regulators aiming to publish the methodology behind the assessments on April 24. The exams aim to ensure that the 19 companies, including Citigroup Inc., Bank of America Corp., GMAC LLC and MetLife Inc., have enough capital to weather a deeper economic downturn.

The U.S. Treasury and financial regulators are clashing with each other over how to disclose results from the tests, with some officials concerned about potential damage to weaker institutions.

There is no set plan for how much information to release, how to categorize the results or who should make the announcements, people familiar with the matter said. While the Office of the Comptroller of the Currency and other regulators want few details about the assessments to be publicized, the Treasury is pushing for broader disclosure.

Risk for Geithner

The disarray highlights what threatens to be a lose-lose situation for Treasury Secretary Timothy Geithner: If all the banks pass, the tests’ credibility will be questioned, and if some banks get failing grades and are forced to accept more government capital and oversight, they may be punished by investors and customers.

“There are plenty of ways to go wrong here,” said Wayne Abernathy, executive vice president of the American Bankers Association in Washington. “It might have sounded good at the time, but now looking back, it has far more risk than benefit.”

President Barack Obama said the tests will show “different banks are in different situations,” in a news conference in Trinidad and Tobago yesterday. He pledged that any new injections of government money won’t go “into a black hole where you aren’t going to see results or some exit strategy so the taxpayers ultimately are relieved of these burdens.”

Fed officials have pushed for the release of this week’s white paper on the methodology of the assessments in an effort to bolster their credibility. The central bank has been leery of inserting politics into the examination process, two people familiar with the matter said.

Regulators’ Concern

Regulators, all of which regularly administer exams to the lenders they oversee, have privately expressed concern about the tests and whether they will be effective, the two people said.

The 19 companies may get preliminary results as soon as April 24, a person briefed on the matter said.

While weaker banks deemed to need additional capital will be given six months to raise it, financial markets may have little more than six minutes of patience before punishing them if the information is publicly released, one official said.

The banks haven’t been consulted on how the information will be released and have raised the issue with the Treasury, three industry officials said on condition of anonymity.

Some banks “are going to have very serious problems, but we feel that there are tools available to address these problems,” David Axelrod, a senior White House adviser, said on CBS’s “Face the Nation” yesterday.

Transparency Goal

Geithner has said he crafted the stress test program in an effort to provide more transparency about the health of banks’ balance sheets.

The economy has worsened since the Treasury announced the tests in February, raising questions about whether the scenarios regulators are applying to bank portfolios are rigorous enough.

Under the assessments’ “more adverse” scenario, the unemployment rate is seen rising to 10.3 percent in 2010. When officials designed that scenario, the most-recent jobless rate was 7.6 percent. It has already soared to 8.5 percent since then.

There have been signs this year of some recovery in the banking industry. Goldman Sachs Group Inc. reported earnings on April 13 that exceeded analysts’ forecasts. The New York-based firm sold $5 billion in stock to help repay government capital injections.

JPMorgan Chase & Co. last week also reported profit that beat analysts’ estimates. Chief Executive Officer Jamie Dimon labeled the TARP program a “scarlet letter” and said the firm could repay the government “tomorrow.”

Banking lawyers and industry officials said the Treasury needs to be clear with the public about the reviews. Because of the intense interest from the media and investors, the government needs to “explain early and often” the purpose of the program, said the ABA’s Abernathy.

“It’s very possible that we are seeing the turning of the corner for the banking industry,” he said. “Our biggest fear is that it becomes a confidence-eroding episode at just the wrong time.”

Serve America Lets Congress Take Another Bow

by Gene Healy

Last week, the House passed the Serve America Act (SAA), which will triple the number of federally funded "volunteer" positions, create a "Clean Energy Corps" to weatherize homes, and make September 11th a "National Day of Service."

Like many federal assaults on the taxpayer, the SAA is a bipartisan offense: It passed by huge margins in both houses. Sen. Ted Kennedy, D-MA, the primary sponsor, got a standing ovation after the vote was in, and co-sponsor Orrin Hatch, the Utah Republican, gushed that "the whole Kennedy family has been a service family."

Hatch's statement neatly captures the fallacy behind the act - the notion that service to America is principally service to the American state.

The SAA is more carrot than stick, subsidizing volunteerism rather than mandating it. But the Obama administration prefers a more coercive approach if and when they can get away with it. Obama's campaign-trail plan would have forced schools to require 50 hours of community service a year, making charity as popular among teens as study hall and mandatory pep rallies.

Political elites have long believed that Americans should be forced to perform good works.

In 2006, then-Rep. Rahm Emanuel, now Obama's chief of staff, coauthored The Plan: Big Ideas for America with New Democrat guru Bruce Reed. Among their big ideas was "universal civilian service for every young American."

"It's time for a real Patriot Act that brings out the patriot in all of us. This is not a draft," Rahm and Reed insisted. Instead, "young people will know that between the ages of 18 and 25, the nation will enlist them for three months of civilian service." See the difference?

Political elites have long believed that Americans should be forced to perform good works. We need "the moral equivalent of war," progressive philosopher William James said in 1906, a community service program that would conscript young Americans to "get the childishness knocked out of them."

Some on the Right share James's vision. Shortly after 9/11, Sen. John McCain, R-AZ, lamented that a draft would be a hard-sell politically, but subsidized national service could help address "a spiritual crisis in our national culture."

Americorps programs that had kids "living together in barracks" and performing daily calisthenics in front of city halls, should be the model for "a service program consciously structured along military lines," McCain said.

Obama's vision is less paramilitary than McCain's. But like McCain, Obama believes that politicized public service is the best way to serve one's fellow man. Obama's website brags that he "passed up lucrative law firm jobs" to work as a community organizer. (As a recovering lawyer still traumatized by the billable-hour drudgery of my past, I can assure him he didn't miss much.)

Of course, people should help their neighbors out. But why does that effort require federal subsidies?

When the government gets into the business of funding community service, the results are, unsurprisingly, politicized and wasteful. Americorps, the pride of the Clinton legacy, has, among other things, sponsored a toy-gun "buyback" program that gave kids $5 for each plastic pistol they turned in.

The price-tag for SAA - about $6 billion over five years - is hardly staggering in an era of trillion-dollar deficits. But if we're going to add to that crushing pile of debt, we ought to have a good reason. Do we?

In 1831, Alexis De Tocqueville marveled at the number of charitable associations he saw while touring America. "Wherever at the head of some new undertaking you see the government in France… in the United States you will be sure to find an association." Yet today, the American intelligentsia seems to believe that unless a barn-raising gets a federal subsidy, it hasn't really happened at all.

"Ask not what your country can do for you; ask what you can do for your country," JFK declared in his inaugural address. Milton Friedman, who helped end the draft and did more for his country than most of our "public servants," pointed out how wrongheaded that perspective was: "The free man will ask neither what his country can do for him nor what he can do for his country."

Americans have always been a charitable people. But when they help their neighbors voluntarily, without federal oversight or funding, it's hard for politicians to take credit for their service. Perhaps that's the real point of the Serve America Act.

Biggest Challenges Still Await Congress

NAFTALI BENDAVID

WASHINGTON -- The new Congress has enacted an array of laws in its first three months, but the biggest challenges lie ahead when lawmakers return from a two-week break to tackle health care and climate change.

When Democrats took office in January with sizeable majorities in both the House and the Senate, they pledged to change the country's direction. It is too early to say whether they will succeed, but they have at least set the stage for coming battles over President Barack Obama's ambitious agenda to expand health coverage to more Americans, address climate change and improve the education system.

After pushing through a $787 billion stimulus package and a $410 billion spending bill for 2009, both chambers on Thursday passed Mr. Obama's $3.6 trillion budget for 2010. The plan aims to shift the government's priorities from the Bush era by increasing spending on health care, energy and education.

Congress has also enacted a series of less-noticed laws in its first 88 days that expand health-insurance coverage to an additional four million children; facilitate efforts by women to sue for equal pay; create 175,000 new public-service positions; and set aside two million acres of wilderness as protected areas.

Steny Hoyer

"This Congress has probably done as much as any Congress in which I have served," House Majority Leader Steny Hoyer (D., Md.) said in an interview. "No one can be absolutely positive that what we are doing will work. You can't guarantee success. But you can guarantee failure if you fail to act."

Some legislative success was to be expected, given the size of the Democrats' majorities, of 254 to 178 Republicans in the House and 58 to 41 in the Senate, and a Democratic White House.

"They're getting their stuff through," said Stephen Hess, a scholar at the Brookings Institution, a Washington-based think tank. "It may not be pretty. But when you start with a stimulus bill like that one, it's a big achievement."

But many measures passed over fierce Republican opposition, and Mr. Obama's hopes for a broad bipartisan coalition haven't yet materialized. That could spell trouble for his grandest plans: overhauling the health system and enacting a plan to fight global warming.

"Democrats in Congress have a big job, but thus far they've dropped the ball," said House Minority Leader John Boehner (R., Ohio). "Instead of working with Republicans to deal with the problems we face, the House Democratic leaders seem to have just one answer -- spend more taxpayer money."

Lawmakers, heading into a two-week spring recess now, plan upon their return to plunge into areas where it could be substantially harder to win support, especially from Republicans.

Time may be short. Democratic leaders want to enact most of their agenda this year, when they have political momentum and Mr. Obama's popularity remains high. As the November 2010 elections approach, the atmosphere will likely turn more political, making it more difficult to achieve compromises.

Among the first orders of business will be writing new regulations for the financial-services industry. Lawmakers from both parties expect some bipartisan cooperation over this effort.

Consensus may be harder to achieve when it comes to overhauling the health-care system. Three House committees are working together to come up with a plan. In the Senate, Sen. Max Baucus (D., Mont.) is struggling to forge a bipartisan bill.

Wide differences remain, especially over Democrats' insistence that any new system should include a publicly run health plan, to give consumers more coverage options.

Sen. Ben Nelson of Nebraska, a Democrat who often works with Republicans, predicted that a health bill of some sort will pass this year, but said it may not be as sweeping as some would like.

Climate change may be the toughest issue of all. Some Democrats as well as Republicans oppose Mr. Obama's proposal for a "cap-and-trade" system, which would set up a market where companies would pay to emit set amounts of greenhouse gases.

Many Republicans say such a system would affect all consumers and the broader economy. "It's also a tax on all economic activity, from factory floors to front offices," Senate Minority Leader Mitch McConnell (R., Ky.) said on the Senate floor recently. "This tax won't just hit American households, it will cost us jobs."

Laws Congress Can’t Change

By Bill Jenkins

04/01/09 Pylesville, MD It’s been a wild week, with irritations ratcheting higher and diplomatic tempers flaring.

“And now nothing shall be withheld from them which they have desired to do…” I mentioned this quote several weeks ago. It comes from one of the many attempts that foolish men have made to be as God. It also brought about one of the greatest cataclysms in history. You can read the whole thing in Genesis 11.

For us, it applies heavily to the advances of government into the field of business. It only makes sense: the occupants of the White House and the Capitol have done such a good job with their budgets over the years, they just want to help everyone else (over the cliff, that is).

It began, as it always does, with just the camel’s nose in the tent. A bit of money here, some bank guarantees there. But then, as the fable tells us, the rest of the camel wanted in.

The government insisted on foisting money on companies who didn’t even need it. Washington’s excuse? If the only companies taking the money were the ones that needed it, those companies would suffer a “stigma.” But if every company took the money, even if they didn’t need it, the bad ones couldn’t be singled out.

We, of course, would never know the difference between the two. So much for more transparency in government. Now the companies who didn’t need the money are lashing back. Having to pay 5% interest on money they didn’t need to borrow is only a greater liability to already burdened companies.

But the government’s fun still wasn’t over. It forced out a CEO at AIG, now one at GM… and it passed a stimulus plan that required contractual bonuses be paid, then issued a 90% tax on them when the public outcry became too great.

Now Chrysler is being pressured to bring green cars to the market by none other than their new “boss,” the Obama administration. Of course, they already have a green car, but the “boss” says it’s too expensive for the public to afford. So, essentially, he pulled the plug on it. Frankly, I’d like to know why he thinks that Chrysler’s greenie is too expensive. It certainly could not cost more than the bailout price tag they have forced each of us to shoulder. Expensive is a relative term.

Make no mistake about it, we are living in times that will likely produce great changes in the world. There is a certain theory that attempts to explain the history of the world through great cataclysmic events.

Some are occurrences in Nature; some are wrought by the folly or the genius of men. Let me say at the outset that I am a subscriber to this philosophy, so have no illusions about what I am saying.

Actually, most people who ever think about such things believe that all of existence began with a great cataclysm. You can call it the “Big Bang” — no matter if you’re referring to the “Big Bang” that set the evolutionary process in motion, or the “Big Bang” of God creating the heavens and the Earth.

At some point, life came into existence - a big event in the universal process of all things. Of course, this is the point where the two theories begin to diverge from one another. Evolution has no more “Bangs” left in its bag. It is a slow and relatively even process from there on. Which is, I suppose, why it takes them billions of years to get to the point that God was able to accomplish in six days.

But for the recorded history of men, it has been one cataclysm after another, of varying sizes and types. Famines, floods, pestilence, earthquakes, volcanoes… and other natural disasters take their toll, but seem to always right themselves over time.

The follies of men, however, are a different matter.

The wonderful world of economics is no exception, and has no exemption. As I have said before, economics bears within itself the very principles by which God has made it to be governed. The Laws of Supply and Demand are not dependant upon Congress. They were not invented by the whim of elected or appointed regulators. They are not governed by the United Nations, the International Monetary Fund or the European Union.

It brings to mind a letter someone once sent to Congress. Perhaps you’ve heard about it before. If not, please enjoy:

Senator John W. Bricker
The Senate
Washington, D.C.

Dear Senator Bricker,

In my opinion I would suggest that if the Senate and Congress would abolish that awful law of supply and demand, it would increase production. Stop hoarding for high prices as is now being done by the government and others. Push all products for sale to the markets and start competition. The law of supply and demand is a burden to the Consumer because they foot all of the bills.

I trust you and your fellow senators and congressmen will act promptly.

Gerald V. __________

(Taken from Dear Mr. Congressman, by Juliet Lowell {New York: Duell, Sloan, and Pearce, 1948}, p. 91.)

I suppose we ought to give Gerald high marks for even knowing the term “supply and demand,” since I tend to think you might be hard-pressed to find it in the vocabulary of modern high school students. I have long felt that it would be a good question for Jay Leno’s “Jaywalking” segment of the Tonight Show.

At any rate, the laws of economics are established by a much Higher Power than we will ever be. And while we are at it, we should also understand that the Power is stronger than we can ever successfully contend with.

This is why, try as we might, we cannot substitute our own economic devices and have them succeed.

So let’s put a finer point on all this. The value of a nation’s currency is built upon the honesty behind it. Even a currency backed by gold becomes worthless if the government holding the gold cannot be trusted. While in days gone by it was easier for authorities to debase a metal and get away with it, all such obligations now are simply based on a government’s willingness to part with its gold. Of course, these days it does not happen.

And while the United States has been an expert in telling other countries how to morally treat their people, we have been robbing them blind! It has gotten so bad that even the Evil Empire and the Red Menace have seen through our chicanery. We may look upon them as people less “evolved” than we are, but the jig is up. Our hypocrisy has been found out.

We have become like the man in the Biblical parable who tried to remove a speck from the eye of his friend, when he himself had a log in his own eye. “First remove the log from your own eye, and then you will see clearly to remove the speck that is from your friend’s eye.” Seems like pretty simple (and common-sense) advice. But in the words of newspaperman Horace Greeley, “Common sense is very uncommon.”

I began this by saying that cataclysmic times are upon us. We are seeing the shaping of men and nations. We are setting the groundwork for the impoverishment of generations.

Spain fell in line with the prevailing models of economics by bailing out its first bank in a quarter of a century. And with a broad brush it painted its regional banks as “heavily exposed to property developers struggling during a deep recession.”

I have told you often of the difficulties prevalent in Europe. Here is but one more piece of evidence. Authorities are planning to solve this with 2-3 billion euros — but, oddly enough, have promised up to 100 billion euros. Wow! That’s a huge disparity. I believe they may think it will take more than just 2 or 3 billion.

On the same topic, European Central Bank President Jean-Claude Trichet sees more ongoing deterioration all across the Eurozone. Market forecasts believe Brussels will announce a 50-basis-point rate cut later this week. Germany, which makes up about 25% of the euro economy, is looking for an acceleration in economic deterioration.

This is a cataclysm.

Central Banks are flying blind with an instrument panel that has no configuration for the geography. The fixes they are trying will lead us to Zimbabwe (hyperinflation) or Tokyo (perpetual slump). Pick your poison.

In the meantime, I am forced to look for more overall dollar strength. The United States still possesses the deepest markets and the “deepest pockets” in the world. If other economies continue to fail, fiat currency supply and demand will favor the dollar. And by “deepest pockets,” I mean they are committed to inflating their way out — and have more ability to do so than anybody else.

I know looking for dollar strength seems a little backward while they are inflating. But the truth is, ever since the credit crunch, everything has been turned on its ear. If you are new to the currency markets, say within the last couple of years or less, likely most of this action makes very little sense to you. But in these times we must remember this axiom: The market will eventually adjust to actual realities. In the meantime, it will be moved by perceived ones. As long as fear filters through the markets, the currency flows will come back to the dollar. When there are periods of vacillation between fear and risk, the currencies can swing wildly.

Congress Could Learn a Thing or Two From Nascar

Congress Could Learn a Thing or Two From Nascar: Caroline Baum

Commentary by Caroline Baum

March 26 (Bloomberg) -- Some people wear their hearts on their sleeve. Members of Congress should wear their sponsors on their chest.

This isn’t an original idea. About a month ago, a friend forwarded me a post that was making its way around the blogosphere at the speed of light:

“Members of Congress should be compelled to wear uniforms like Nascar drivers, so we could identify their corporate sponsors.”

Great idea. Just imagine what that would look like.

Senator Chris Dodd, Democrat of Connecticut and ethically challenged head honcho at the Senate Banking Committee, files into a congressional hearing room, wields his gavel and calls the committee to order. The dress code is business casual: collared shirts, no jacket required.

Dodd is sporting a pink Lacoste shirt, with his “endorsements” emblazoned across his chest in large, black letters (the corporate logos go on the back):

     Citigroup Inc.                $428,294
    United Technologies           $380,550
    Bear Stearns                  $347,350
    American International Group  $281,038
    Deloitte & Touche             $270,220

And that’s just a list of Dodd’s Top 5 lifetime contributors, according to the Center for Responsive Politics.

The list goes on: Goldman Sachs, Morgan Stanley, JPMorgan Chase, Merrill Lynch and Lehman Brothers.

Public Information

You get the idea. Aside from United Technologies, based in Dodd’s home state, his major contributors all have business before the Banking Committee.

This is publicly available information, courtesy of CRP’s opensecrets.org Web site. Aside from a handful of journalists, political junkies and those with an ax to grind, most people don’t spend their days combing through details of who gave how much to whom.

Which is why lawmakers should publicize their donors.

AIG’s largesse didn’t seem to dissuade Dodd from inserting an amendment into the $787 billion fiscal stimulus bill limiting executive compensation at companies receiving money from the Troubled Asset Relief Program.

On the other hand, one might wonder if Dodd was persuaded to look the other way by large contributions from Fannie Mae and Freddie Mac. He was the No. 1 recipient of cash from the two government-sponsored (now owned) enterprises, which were trying to fend off regulations that would curb their size, risk and profitability.

Strategic Giving

Fannie and Freddie specialized in strategic giving, concentrating their contributions on committees with oversight responsibility, including Senate Banking and House Financial Services. Their efforts were successful until they collapsed into the government’s arms in September.

AIG has contributed $9.3 million to federal candidates and parties through political action committees and individual contributions over the last 20 years, according to CRP. Dodd was the No. 2 recipient of AIG cash from 2003 to 2008, right behind President Barack Obama.

One reason Dodd’s contributions are larger than most ranking members and committee chairmen, especially in the latest election cycle, is his failed presidential run.

“Anyone who runs for president bubbles to the top of the contribution list,” says Massie Ritsch, communications director at Washington’s CRP, which tracks money in politics.

Pay to Play

Just because an elected official receives campaign contributions from certain companies or industries doesn’t mean he’s on the take.

It sure looks that way, though. If I didn’t know better, I’d think the stepped-up campaign contributions to Dodd and his Banking Committee cohorts in the last election cycle was a down payment on new regulations being crafted by Congress following the Panic of 2008.

It’s probably no coincidence that Senator Max Baucus, Democrat of Montana, is another top recipient of AIG contributions. Baucus chairs the Finance Committee, which shares oversight of AIG with the Banking Committee.

Senator Richard Shelby, ranking Republican on the Banking Committee and chairman before the Democrats took control in the 2006 election, is beholden to -- I mean, receives most of his campaign contributions from -- lawyers and law firms.

With Congress pounding away at Treasury Secretary Tim Geithner and Federal Reserve Chairman Ben Bernanke for more transparency, and New York Attorney General Andrew Cuomo threatening to release the names of the AIG bonus recipients -- an invasion of privacy that has no relevance to anything -- isn’t it time Congress let a little sun shine in?

Right to Know

The public has a right to know what sort of hanky-panky its elected representatives are up to. In order to fulfill our electoral responsibility, we have to make informed decisions about whether our congressman is doing the people’s business or catering to his corporate constituency. Without a handy list of sponsors, we can’t determine the extent to which money buys access, not to mention perks and tax benefits.

At a time when Congress is channeling public outrage at AIG for awarding $165 million of bonuses to its financial products group, lawmakers should appreciate how quickly mob outrage can ricochet back to them.

So why not do the right thing now and return AIG’s campaign contributions to the people? As it turns out, that idea is already resonating with the public.

A new poll by the O’Leary Report and Zogby International found that 73 percent of Americans think any members of Congress who received campaign contributions from AIG over the last two years should return the money.

Return on Investment

Why stop there? Lawmakers should fork over all campaign contributions received from TARP-taking banks. These institutions doled out $114 million in the past year for lobbying and campaign contributions, according to CRP. Add that to the $50 million in AIG bonuses already returned by recipients, and we could put this whole bonus kerfuffle to rest.

It turns out the $114 million was money well spent. It bought the banks $295.2 billion in TARP money, a return of more than 258,000 percent.

Who needs off-balance-sheet vehicles when the government can provide that kind of return on investment?

Why Congress Will Kill the Bank Rescue

What happens when the hedge funds make profits?

VINCENT REINHART

Americans can be forgiven for experiencing a sense of deja vu as they digest the details of Treasury Secretary Timothy Geithner's Public-Private Investment Program (PPIP) for troubled bank assets. What was rolled out on the pages of newspapers this week read like press releases on the various plans over the past year from Mr. Geithner's predecessor, Hank Paulson.

The two Treasury secretaries share a touching faith in public-private cooperation to lift the value of troubled assets. This assumes, of course, that those assets are troubled because their true values are obscured by irrational self-doubt and market illiquidity, and not by fundamental problems in the prospects of repayment. It also assumes that the solution to problems created by excessive leverage is for government to encourage more leverage.

Notably absent in the Geithner plan is any progress on the barrier at which Mr. Paulson stumbled last year: What are the right prices for troubled assets? To believe that the solution lies in harnessing the public and private sectors in tandem shows a misunderstanding of these sectors' incentives.

Public officials want this problem to go away without being stuck with the smoldering wreckage of large and complicated financial institutions. That requires buying assets quickly from problematic firms at the highest prices possible.

Private investors want to make a profit. That can best be achieved by delaying purchases, thereby lowering prices and sticking the government with as much of the loss as possible.

The possibility of outsized profit, made possible by government guarantees and matching capital contributions, is the carrot government can offer to those with private capital willing to commit to the enterprise. The problem is that Congress has been demonizing the financial sector and considering ex post expropriation of bonuses.

For the PPIP to work, the government will have to use the expertise of much-vilified financial professionals, create massive expected profit opportunities to entice capital, and tap places where there are deep pools of money -- including sovereign wealth funds. If the PPIP is successful, is there any chance that Congress would not be holding hearings complaining about the massive rewards to those who took on the risk? Unless members of Congress cool the heat of their rhetoric, the potential profits Mr. Geithner is putting on the table will simply be left there.

When the government's carrot does not work, next will come the stick. Remember, 19 of the largest financial firms have been asked to submit to stress tests detailing the adequacy of their capital.

Talk about irony. Financial markets are in disarray today because leading firms chose to bury complicated instruments in their books. The results were opaque balance sheets that hid the considerable use of leverage, and proved misleading both to investors and examiners. These same firms are now being required by regulators to use these misshapen accounts to make far-ahead predictions.

But the objective of the stress test is not to get useful forecasts. Rather, it will provide the excuse for regulators, outside the usual process of examination and resolution, to open a discussion with major firms about the adequacy of their capital.

A dialogue, once started, can then proceed to capital infusions, forced mergers and other forms of balance-sheet relief. This will all be with an eye to creating strong incentives for bank managers to attract private capital. If necessary, the stress tests can be used to force fire sales that will attract private capital through the PPIP.

So the government, once again, has opted for a circuitous route to the goal of sorting out financial firms. This will take longer than necessary and sacrifice clarity. But obfuscation was probably a design principle. As yet, the American public does not appear ready to admit that its government will have to absorb large losses to restart financial markets. Until that day comes, government action will continue to be indirect and probably insufficient.

This circuitous route can work, provided that the branches of the government pull in the same direction. Politicians are going to have to understand that the longer-term good of the nation involves cooperating with, not castigating, financial professionals. And the Obama administration will have to understand that its approval rating is to be used to convince the public of hard choices.

Mr. Reinhart is a resident scholar at the American Enterprise Institute and former director of the division of monetary affairs at the Federal Reserve.