For Israel and the Palestinians, It’s Now or Never

Kerry Apologizes for Telling the Truth: April 29: Met with wrath, he apologized for saying that if a two-state solution is not reached, Israel runs the risk of becoming a bi-national apartheid state. Kerry is hardly the first to view that as an eventuality. The Palestinian population in Israel and the West Bank is forecast to exceed the Jewish population, which would force Israel either to erect a two-tiered society or risk losing control of Israel as a Jewish nation if all have equal voting rights.
    

Like so many before him, U.S. Secretary of State John Kerry must have often dreamed of traveling someday to Oslo to accept the Nobel Peace Prize for being the one finally to resolve the decades-long impasse between Israel and the Palestinians. But as the arbitrary nine month negotiation timetable that he set last summer draws to its end-April close, what he has chiefly accomplished is to make more apparent than ever just how intractable are the differences separating the two sides.

With five days to go the Palestinians blew up any possibility for the talks continuing — at least according to Israel’s Benjamin Netanyahu — by announcing an alliance between Fatah, the leading political party of the Palestinian Authority in the West Bank that has been negotiating with Israel these many months, and Hamas, its counterpart that controls Gaza and is viewed as a terrorist group by both Israel and the United States. In reaction, Netanyahu said, “As long as I am prime minister of Israel I will never negotiate with a Palestinian government backed by terrorist organizations committed to our destruction”.

the unraveling

When Israel failed to deliver the last of four groups of Palestinians held as prisoners by the Israelis and at the same time announced another 700 housing units for Jewish settlement in East Jerusalem, Palestinian Authority President Mahmoud Abbas retaliated by quickly signing on to 15 international conventions and treaties that would treat Palestine as a state, breaking what he had pledged not to do as his part in the prisoner release bargain. And now, his reconciliation with Hamas is viewed by Israel as making further talks beyond consideration, a blunder by Abbas that allows Netanyahu to place the blame with the Palestinians, letting him off the hook held by those in his coalition government who are opposed to a two-state solution of any sort.

As opposed to blunder, we see something different possibly afoot. Is not Hamas’ sudden alliance with Fatah attributable to Abbas joining the 15 conventions? Would Hamas have done so if this were merely a bluff by Abbas? Isn’t it more likely that Abbas and his party have decided to abandon the talks altogether (he has reportedly made increased demands of a sort unacceptable to Israel on their face such as a prior agreement for Israel to retract to the pre-1967 War borders) and pursue this new international path entirely? Did Hamas come aboard effectively saying “now you’re talking”. This could explain their abrupt about-face only weeks after militant groups in the Gaza Strip launched about 100 rockets into southern Israel, prompting Israeli airstrikes, and after commandos intercepted a ship from Iran to Gaza carrying advanced missiles.

At those international bodies, the nascent Palestine will probably lobby for sanctions and boycotts against Israel, following the model that was successful in ending apartheid in South Africa. But Israel fears it will also become a party to the International Criminal Court, a move greatly feared by Israel because of its power to punish war crimes. As if to underscore that alarm, U.S. ambassador to the United Nations Samantha Power attested before Congress at the beginning of April to “our firm opposition to any and all unilateral [Palestinian] actions in the international arena” because they pose a profound threat to Israel. Netanyahu declared that “The Palestinians will achieve a state only by direct negotiations…not by unilateral moves“ (a statement that reveals the extent to which Israel has mentally colonized its Arab neighbors).

the deal breaker

If we are surmising correctly, what may have convinced Abbas that he could never forge a deal with Israel is Netanyahu’s insistence as a pre-condition to any agreement that the Palestinians recognize Israel as a “Jewish state”. He has called that “the minimal requirement”, “an essential condition” and “the real key to peace”. Sounds reasonable. After all, Israel was founded as a homeland for the Jewish people.

Except that for the Palestinians that designation is fraught with suspicion. They question why it is their responsibility to define Israel’s character. In a meeting with President Obama, Abbas said, “Since 1988, we have recognized international legitimacy resolutions, and in 1993, we recognized the State of Israel”, referring to when Yasir Arafat wrote to Yitzhak Rabin that the Palestinians recognize the right of Israel “to exist in peace and security”. So why the insistence on “Jewish” and does it have some hidden meaning? Will the 1.6 million Arabs living in Israel be reduced to second-class citizenship? Would they be disenfranchised from voting for not being Jewish? Might agreeing to “Jewish state” even be treated as grounds for their deportation?

And agreeing to “Jewish” state would certainly nullify the demand that the Palestinian refugees who fled before the onslaught of the 1948 war have the right to return to what became Israel. Unsaid is that any move by Abbas toward giving up the “right of return”, and with nothing in exchange, no doubt has him contemplating the likelihood of his own assassination.

Of course, the Palestinian hope to win the return of some 800,000 refugees, is a fantasy, and not only because 66 years on, there’s barely an original refugee left in the camps. With their descendants grown to millions, their influx into Israel would be a Palestinian Trojan horse, a probably fractious horde that would have to be denied rights for Israel to remain in control as a Jewish state, and that would replace democracy with apartheid, destroying Israel’s legitimacy in the world arena. Unmentioned is the probability that the Fatah doesn’t want them either, an angry element that might side with and tip the scales toward Hamas.

“Bibi” Netanyahu knows why Abbas cannot say the magic words “Jewish state”, of course, and is accused by countrymen of using this demand as a poison pill to make certain that a two-state solution never happens. Finance Minister Yair Lapid says, “I just think this is rubbish…we don’t need anyone else to recognize us”.

“I think it is a mistake for some people to be raising it again and again as the critical decider of their attitude toward the possibility of a [Palestinian] state and peace,” Mr. Kerry told Congress in mid-April.

Netanyahu walks a tightrope on the issue. He leads a coalition government that includes political parties openly against the two-state solution. If Netanyahu truly wants to pursue that objective, he may have to form a new coalition of those who see side-by-side nations as the only way to preserve Israel as a Jewish state. In the present alignment, he must fend off the likes Naftali Bennett, head of the pro-settler Jewish Home party that holds about 25% of the seats in the Knesset (parliament), who favors a plan to annex over 60% of the West Bank and “build, build, build”, leaving the Palestinians only their cities, with Israeli military still in control. He has said he will quit the coalition if Israel agrees to a Palestinian state with the 1967 lines and East Jerusalem as its capital. “America has been around…for 220 years or so years…Jerusalem has been our capital for 3,000 years”, says Bennett. To Muslims Israel’s claims to the land from millennia ago are nonsensical.

yankee go home

These right-wing elements are openly hostile to the talks and to the unflagging efforts of John Kerry, who has made more than a dozen trips to the region so far. Bennett called him a “mouthpiece” for anti-Semitic factions out to boycott Israeli goods. An article quoted Israel’s defense minister, Moshe Yaalon, as saying Kerry “operates from an incomprehensible obsession and sense of messianism…The only thing that might save us is if John Kerry wins the Nobel Prize and leaves us be”. The State Department shot back with, “The remarks of the defense minister, if accurate, are offensive and inappropriate, especially given all that the United States is doing to support Israel’s security needs”, implying the $3 billion a year the U.S. gives Israel each year to fund Mr. Yaalon’s weaponry.

Before this newest bombshell, the talks had already gone “Poof!” (Kerry’s description to the U.S. Senate) when in late March Israel put out for bids for those 700 housing units (in addition to 1,400 announced in January in East Jerusalem and the West Bank) and reneging on the final prisoner transfer. In retaliation, Israel fired back by announcing its intention to withhold the monthly transfer of about $100 million in tax revenues that it collects in behalf of the Palestinian Authority, and it “legalized” 250-acres that had been taken from Palestinians in the Gush Etzion settlement, the
largest appropriation in years according to the Israeli newspaper Haaretz. In other words, the talks were already at a standstill.

Testifying before the Senate Foreign Relations Committee, Mr. Kerry said both sides were responsible for their “unhelpful” actions. Israel was “deeply disappointed” to be included in Kerry’s blame. Cessation of settlement expansion was not agreed to as a condition for talks, said an Israeli official, so the Palestinians should have no objection to further building in “Israel’s capital” city. The U.S. views the settlements’ taking of land in the West Bank and in the Jerusalem site, which is outside Israel’s borders before the 1967 war, as a violation of international law. Beyond the fine print of what was or wasn’t agreed to originally, the Palestinians hardly view further settlement building as conducive to continued peace negotiations.

As Jeffrey Goldberg of Bloomberg View puts it, after nine months ”they’re not talking about settlements or refugees or the future of Jerusalem. They’re just talking about how to talk”.

At Kerry’s Senate appearance, Arizona Republican John McCain predicted that Kerry is “about to hit the trifecta” — failure to produce a political settlement in Syria, a nuclear deal with Iran, and no results with Israelis and the Palestinians. “It’s a tough issue,” Mr. Kerry said, looking daggers at the former fellow senator. “But your friend Teddy Roosevelt also said the credit belongs to the people in the arena who are trying to get things done.”

last roll of the dice

The U.S. and Kerry are expected to lay down a body of core principles that they view both sides must agree to in order for the decades-long Israeli-Palestinian conflict to end — retention of certain of the settlements, compensated by land transfers to the Palestinians, withdrawal of the rest to the 1967 lines, and security arrangements for the Jordan Valley. Presumably they would not be so foolish as to include the “right of return”.

Beyond that, too much of greater consequence for the U.S. is happening around the world now. And, as we say, after watching the U.S. exert this much effort only to be met with a total lack of progress, with both sides locked in their positions, no one will bother with this again. Left on their own, the likely scenarios for Israel and the Palestinians are not encouraging.

Israel May Be Left With Only U.S. As Ally

Time is not on Israel’s side. The unending occupation, the demeaning checkpoints, the anti-terrorist barriers, the soldiers and tanks even after years of relative calm with West Bank Palestinians, the expansion of settlements usurping those lands with 540,000 Jews now living beyond the 1967 boundary, the increasing attacks by settlers on Palestinian neighbors, all have inspired growing questioning of Israel’s moral integrity.

Added to that, a disturbing indifference to civil rights has eroded good will. Eritrean and Sudanese refugees seeking asylum are being confined to a camp in the desert, leading to accusations that Israel is a racist society. Israel was in the process of driving thousands of Bedouins off land in the Negev desert that their families have lived on for generations to make way for the transfer of huge military bases, until public outcry from human rights groups and demonstrations within Israel forced them to back down. Palestinians in the West Bank say they are frequently the
targets of violence from Jewish settlers. So-called “price tag” attacks have almost quadrupled in the last four years — 72 in the first two months of this year. This refers to revenge taken against Palestinians when Israel’s army uproots olive trees that settlers have planted on Palestinian land, for example. The
settlers “cut down trees, deface mosques and beat Palestinian farmers”. Israel refused to permit construction materials from entering Gaza for eight weeks last year, and then only allowed their use in United Nations projects, leaving thousands of construction workers without jobs.

the B.D.S. movement

These policies have given rise to a boycott of Israeli products. “The young generation…realize[s] that the stones of the first intifada and the suicide bombers of the second are yesterday’s weapons in yesterday’s war.”

What began as a grassroots effort to dissuade supermarket shoppers in Western countries from buying Israeli oranges and hummus has become the organized “B.D.S.” movement, which stands for boycott, divest and sanction, the weapon its proponents have chosen seek to end the Israeli occupation. It has not gained much traction in the United States, but a number of European financial institutions no longer invest in Israeli companies. A Dutch pension fund cut ties to Israel’s top five banks for doing business with Jewish settlements. Norway’s huge sovereign wealth fund banned investing in construction companies that build outside the 1967 line. The European Union revised its grant guidelines, disallowing awards to Israeli universities or companies active in East Jerusalem or the West Bank.

If the boycott is but an annoyance now, the failure of the talks to continue could lead to a “massive eruption of the B.D.S. movement”, believes Gidi Grinstein at a non-profit concerned with the Israeli society. Kerry said continued construction of the illegal settlements will provoke an international boycott “on steroids”.

Netanyahu calls the boycotts an attempt to “delegitimize” Israel. He and others, seemingly impervious to legitimate objections to Israel’s oppression of the Palestinians, human rights violations and the ongoing appropriation of West Bank lands, have resorted to the usual fallback, calling the boycotts “anti-Semitism”. That label, in the past usually successful in intimidating critics into silence, is working less well today. Other defenders of Israel point to all the injustice perpetrated around the world and ask why single out Jews for the boycott? Except nowhere else has one people occupied the land of another for 47 years. Even the U.S. Department of State
has said that Israel’s “institutional, legal and societal discrimination” against its own Palestinian citizens is an “existential threat” owing to the apartheid image that this treatment evokes.

The B.D.S. movement itself does have suspect intentions, though. It, too, demands the right of return of the dispossessed refugees, which Israelis view as an attempt to destroy the Jewish state from within. The vast influx would extinguish the ethno-religious self-definition of the country. “They want to see Israel disappear”, says Grinstein.

Ultimately, though, harshly controlling another people against their will sharply diverges from the values of the Jewish diaspora and from the creed of self-determination at the core of American values.

But abandonment by the U.S. is extremely unlikely. Politicians are not just mindful of the Jewish vote when they greet Benjamin Netanyahu with standing ovations in Congress and routinely vote unanimously on pro-Israel measures. A much larger voting bloc is the evangelical Christian multitude in the U.S. which believes in the Rapture that will only occur when all of Palestine is in Israel’s hands. That is the prerequisite for the battle of Armageddon to begin and the End Times to arrive when the faithful ascend into heaven. The evangelicals number 70 million in the U.S. vs 14 million Jews worldwide. The media assumes that the Jewish lobby AIPAC holds the greatest influence, but the evangelical lobbying organization, Christians United for Israel, is larger and spends much of its money on aiding settlement building in the West Bank in defiance of U.S. policy.

It is the growing opprobrium of other countries that Israel is concerned about, principally in Europe. Israel’s fear is that the import of foreign investment in its high-tech companies could dry up in addition to the export of its technology and agricultural products to Europe that are key to its economy. If Israel and the Palestinians continue on their present course of refusing to yield on any of their conflicting demands, it is Israel that will suffer most from its growing worldwide isolation.

Emboldened by West’s Reluctance, Putin Is Poised to Pounce

The well-armed and certainly Russia-backed militants that occupy the public buildings in East Ukraine are there for a reason that transcends April 17th’s tentative pact, an agreement that makes no provision for Putin to pull back the estimated 40,000 troops massed on the eastern Ukrainian border. It calls for the
Putin’s “New Russia”
streets, squares and occupied buildings to be cleared in return for exploring greater autonomy for Ukraine’s regions. But there is no expectation that the insurgents will comply with the order to vacate. It is not their assignment.

Their mission is to wait for the central government in Kiev to use force to remove them. And that is the moment Putin waits for, the moment that will give him the pretext to let loose the troops and invade on the pretext of protecting Russia-allied Ukrainians. Did not the Russian leader, on the same day the agreement was concluded, speak of “Novorossiya” — New Russia? That was the name given to an area conquered by Russia in the 18th Century that embraces all of Ukraine along the Black Sea. It includes the city of Odessa and extends west to the border of Moldova — assumed to be another Putin target. The Russian president sees nothing but sanctions as a penalty for this second land grab. This is the next move we can expect.
how did we get here?
The world is hardly at peace as this new century unfolds. Death and chaos in Syria, renewed sectarian bombings in Iraq, al Qaeda and the Taliban terrorizing in the name of religion and hatred of the West, rebel armies leaving uncounted dead in the hellholes of Africa. And now, just as the United States prepares to draw away from a Middle East written off as hopeless to deal with the rising territorial belligerence of China (and a psychotic North Korea), a new threat has arisen as Vladimir Putin decides that Russia must resurrect itself as a great power.

The patterns that will shape the 21st Century are being spread out before us, and their design is increasingly ugly. How things are turning out seems to mock us for celebrating an anticipated “peace dividend” in the ‘90s after the collapse of the Soviet Union. Instead we left behind a 20th Century that resolved much less than we thought.

Speaking before European Union officials in Brussels, President Obama voiced a similar lament:

”Russia’s leadership is challenging truths that only a few weeks ago seemed self-evident, that in the 21st Century the borders of Europe cannot be re-drawn with force…That…would ignore the lessons that are written in the cemeteries of this continent. It would allow the old way of doing things to regain a foothold in this young century.”

We have ourselves to blame for much of Russia’s combativeness. When the Soviet Union came apart, the triumphalist attitude the U.S. adopted was disappointing and foolish. The United States, widely esteemed for its Marshall Plan, the enlightened policy that helped to rebuild a defeated Germany, this time put the screws to its former adversary, a policy analogous to the mistakes made after the First World War, when the Treaty of Versailles forced the reduction of Germany’s military, the destruction of its armaments, payment of reparations from bankrupt coffers, and dispersal of pieces of the country to others (Alsace-Lorraine, Sudetenland) — punitive measures that set the stage for a leader to come along who would rally its people to restore pride in their nation through conquest.

That is not unlike what we have helped to create with Mr. Putin. The U.S. and Europe took advantage of a weakened Russia after the disbanding of the Soviet Union to expand what had been the North Atlantic Treaty Organization well to the east. From the Russian viewpoint, the West has sought to surround Russia with NATO, which now comprises 28 countries, more than twice the original dozen, several having even defected from Russia’s counterpart, the Warsaw Pact, and a couple of them — Estonia and Latvia — right up against Russia’s northern borders, with a third, Lithuania, inches away. We then placed missile defenses in those eastern reaches, avowedly as a deterrent against Iran. Russia did not view them that way.

These senseless provocations by the Bushes and Clinton showed a remarkable ignorance of Russian paranoia, its historical fear of a cordon sanitaire, as a repeatedly invaded country (Napoleon, Hitler) that had by far the greatest loss of life in World War II. The western bully inspired in Putin an unyielding hatred for the United States that we heard in his speech that announced the annexation of Crimea to the country’s legislators and top officialdom:

“They cheated us again and again, made decisions behind our back, presenting us with completed facts…That’s the way it was with the expansion of NATO in the East, with the deployment of military infrastructure at our borders. They always told us the same thing: ‘Well, this doesn’t involve you.’”

Ukraine was the latest chapter. The U.S. and Europe meddling in Russia’s backyard, its “close abroad” sphere of influence, Kiev being the “the mother of Russian cities” where
Russia itself took root, was an outrage for Putin and his cohort — a further encirclement, this time a move up against Russia’s southwest. “They see it as an erosion of their buffer zone, a further Western incursion into their natural sphere of influence”, says Kathryn Stoner, a Russia expert at Stanford University. “It would be like Russia going to Mexico and saying to the Mexican president, we stand with you against the U.S.”. When we vied along with the European Union to woo Ukraine away from ties with Russia, that only confirmed that the West is what Vladimir Yakunin, an adviser to Putin and head of Russian Railways, called a “global financial oligarchy” that wants continued domination of the world economy at Russian expense. Another member of what might be called Russia’s neocons, Aleksandr Dugin,
said that “Anti-Americanism has become the main ideology, the main worldview among Russians. There will never be another ‘reset,’ ever.”

what’s next?

America’s concern is that Putin will not stop, that he will claim that ethnic Russians in other enclaves such as the Baltic states are threatened, that he will claw back pieces of the last century’s empire. Like a de Gaulle, he regards himself as the personification of Russia, destined to make history by restoring his country’s greatness. His decisive action in Crimea has caused his popularity to soar at home, stirring a nationalist pride that has eclipsed the shouts of “Putin is a thief” and “Russia Without Putin” by tens of thousands in December 2011 street protests after what was considered his rigged re-election.

For Crimea he cites the same arguments that NATO did to justify the independence of Kosovo to protect its population from Serbia’s infamous “ethnic cleansing”. Germany’s Chancellor Angela Merkel called “shameful” Putin’s comparing the threat to Crimea’s Russians to NATO’s Kosovo intervention, which occurred only after years of actual atrocities. Such fabrications have shown that he can’t be trusted. There were no such threats. He then denied that the unmarked troops that invaded were Russian. The thousands of troops massed at the border of southeast Ukraine are there only for “exercises”, he and his generals claim, a curious choice of location in a nation of 6.6 million square miles. Most serious, he abrogated the Budapest Memorandum, signed by Russia, the United Kingdom and the U.S. in 1994 that guaranteed Ukraine’s sovereignty in exchange for its surrendering its nuclear weapons. Putin claimed that the ouster of the staggeringly corrupt Ukrainian president voided the pact, as if Yanukovych was Ukraine.

Who lost Crimea?

Like the drone of a Greek chorus telling the audience the back story of how the tragedy unfolded, politicians and pundits on the right want to make sure we know that it is Barack Obama’s weakness that led Vladimir Putin to expropriate Crimea and append it to Russia.

Never mind the sequence of events: Yanukovych committed his country to join Russia’s trade alliance, ditched the compact with the European Union that the public wanted, ignited months of rioting and burning in Maidan Square. The insurgents sent him fleeing, seized parliament, set up a new government absent representation of eastern Ukraine where ethnic Russians mostly live, then revoked a law that had allowed general use of the Russian language, and introduced a bill that would ban Russian from the media, with the neo-Nazi rightists wanting to
strip Russian speakers of Ukrainian citizenship.

For Putin this was an anti-Russian coup on its border. Events led him to make sure Crimea, long historically part of Russia, would return there and its 60% ethnic Russian population be repatriated. When Putin broke off pieces of Georgia, just as he didn’t give a thought to the aggressive George W. Bush (certified as non-weak by the war hawks even though he took no action), neither did he give a thought to Obama. Journal columnist Peggy Noonan got it right: “Mr. Putin didn’t go into Ukraine because of Mr. Obama. He just factored him in”.

Yet it became the settled consensus that Obama’s failure to launch cruise missiles against Syria’s al-Assad regime told Putin he could act with impunity. “When the leader of the world’s only superpower issues a military ultimatum and then blinks, others notice”, said The Wall Street Journal. (
Forgotten is that, unlike Bush in Afghanistan and Iraq, Obama lacked the support of the United Nations, usually reliable Britain, the American public, and a Congress that, after a long lapse, exerted its constitutional right to declare war and then refused Obama’s request. He would have been going into Syria entirely on his own. A vote for impeachment surely would have followed.)

manning up
The universal accusation that he is weak may now be causing Obama to take overly provocative actions, sending F-16s into Latvia and warships into the Black Sea as if to placate his critics. In the same speech quoted above Obama said,

“What we will do always is uphold our solemn obligation, our Article 5 duty to defend the sovereignty and territorial integrity of our allies and in that promise we will never waver. NATO nations never stand alone.

No equivocation there.

The armchair warriors, leading from behind, are in full throat. William Kristol, publisher of the conservative Weekly Standard magazine, has never
worn a uniform but tells us we must not allow our war-weariness to be an excuse for not “shouldering our responsibilities”.

The Wall Street Journal’s editorial page calls for a “renewed military deterrent”, which “does not mean a strike against Russia”; rather, just the sort of paranoia-inducing moves that could prod Russia to strike instead. We are exhorted to move “quickly to forward deploy”, “permanently stationing forces in Poland and Romania as well as the Baltic states of Estonia, Latvia and Lithuania”, “troops in addition to planes and armor”, revive the “Bush-era missile defense installation in Eastern Europe” and “deploy ships from the Europe-based Sixth Fleet into the Black Sea”, thus directly confronting the Russian fleet at Sevastopol
in a closed-off body of water like scorpions in a bottle. How to start a war.

Russia’s Defense Minister Sergei Shoigu now says Russia plans to use military bases in Cuba, Venezuela and Nicaragua for its navy and to refuel strategic bombers. Tit for tat.

Patrick Buchanan, a conservative who once sought the Republican presidential nomination, regularly chastises America for its foreign entanglements at his website. He makes the point that, across the 45-year span of the Cold War, five U.S. presidents took no action against Russia for anything they did east of the Elbe River. They…

”ruled out force during the Berlin Blockade of 1948, the Hungarian Revolution of 1956, the building of the Berlin Wall in 1961, the Warsaw Pact invasion of Czechoslovakia in 1968, and the smashing of Solidarity in Poland in 1981.”

But we are now well east of the Elbe. With NATO’s aggressive push eastward we have now guaranteed the security of the Baltic States smack on Russia’s border. Much like Crimea, they have substantial ethnic Russian populations and are just what Mr. Putin would like to re-possess in his drive to rebuild a Russian empire.

Having painted ourselves into that far corner, we need ask just how strong is NATO’s resolve, should that be Putin’s next step? We are watching European diffidence to even invoke economic sanctions, fearful of a Russian cut-off of natural gas on which Europe relies, and anxious about consequences to thousands of Euro-owned businesses set up in Russia over the last quarter century. And there’s this to consider: “In the United States, one man takes a decision on the basis of an executive order”, said Poland’s foreign minister, Radoslaw Sikorski to journalists, “whereas in Europe…we need a consensus of 28 member states”. Well, not quite, but…

Given the awkwardness of a bloated NATO and its questionable military readiness, Putin may well be tempted to test Europe’s resolve in the Baltics. “The U.S. is from Mars and Europe is from Venus. Get used to it”, Sikorski added. Douglas Feith, a former under-secretary of defense, raised a discomfiting specter in a Journal op-ed. “The Russian leader could perceive a rare opportunity to wreck NATO”.

Applying the Brakes to Super-Fast Trading

“The United States stock market, the most iconic market in global capitalism, is rigged”, said Michael Lewis on “60 Minutes”. The perennially best-selling author was promoted his latest book, “Flash Boys”, which tackles the subject of high-speed trading.

It’s a topic we dealt with a year and a half ago in this article, when inadequately vetted code at trading firms or exchanges had caused a trio of market plunges such as the 2010 “Flash Crash” in which a market drop of 300 points in the Dow set off a computer-driven selling frenzy that caused a plunge of 600 more. The market recovered within minutes, but the alarming volatility of these crashes was thought to be driving individual investors from the market, a market that has become computerized trading. It now accounts for over half the daily volume of stock trades. We voiced “growing concerns that high-speed trading is manipulating the markets” without knowing quite how. Neither did anyone else, until — as recounted by Lewis — an executive at the Royal Bank of Canada cracked the code.

Lewis’ book and “60 Minutes” interview caused an immediate sensation. The allegation that high-speed trading causes the market to be “rigged” has triggered investigations by the FBI, the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission and the New York State attorney general and sent The Street and its supporters into a defensive crouch. The Wall Street Journal resorted to irrelevance in a lead editorial that celebrated the much lower commissions “mom and pop” pay thanks to electronic trading rather than “handing over hundreds of dollars to a well-fed broker in a wood-paneled office”. Much lower commissions owe to the abandonment of fixed commissions way back in 1975, and the efficiency of electronic trading is a triumph well apart from its abuse by high-speed traders. The SEC is the culprit, said the editorialists, not the perpetrators.

They refer primarily to the SEC rule that requires a trade to seek the best price among the 13 exchanges whose server installations dot the map of New Jersey as well as some 50 alternative trading platforms. That buy or sell trades travel over fiber-optic cables to the principal exchanges means that the shorter the route, the quicker a trade reaches an exchange in order to grab that best price before another order gets there first and moves the price up on a buy or down on a sale. To get there first, high-speed trading firms began years ago to pay extra to the exchanges to place their order-processing boxes right on their premises — claims of unfair advantage to no avail.

The “60 Minutes” piece reported that one outfit named Spread Networks had spent $300 million to lay a fiber optic line from the futures market in Chicago to the New Jersey exchanges just to shave 3 milliseconds off the departure and arrival time and were leasing access to high-frequency traders at $10 million a customer.

Not fast enough for another Chicago firm, Anova, which will link the New York Stock Exchange installation in Mahwah, New Jersey, to Nasdaq’s facility 35 miles away by laser communication. Only the speed of light will do in the “race to zero”.

front running

None of this is news. What broke new ground in Lewis’ tale was the discovery by the head of stock trading in the New York offices of the Royal Bank of Canada named Brad Katsuyama that, to use a buy order as an example, high-speed traders are able to leap ahead of an order as it wends its way across New Jersey looking for the best price, buy the shares at that best price before the original order finds it, and then sell the shares to the original order-placer at a higher price, pocketing the difference. What set Katsuyama on his quest was that, over and over, when the bank’s traders placed a client’s buy order for a large block of stock, the order would only be partially filled, and the rest of the order would go off at a higher price.

What Lewis also brought to light is a practice employed by brokerages that is practically unknown to the individual investor called “payment for order flow”. Instead of placing your orders with the exchanges, large brokerages sell them to companies outfitted with super fast computers that — unaccountably, given the SEC’s best price rule — match orders internally with the other customers of all their client brokerages without ever going to the exchanges. These shadow companies are said to make their money on prices differences on trades but just what they do seems to be opaque. The Journal reported that the stock price of Charles Schwab, E*Trade Financial and TD Ameritrade had “tumbled” in the wake of the “Flash Boys” exposé out of concern that these brokerage firms would lose “hundreds of millions of dollars a year” paid to them by these intermediaries should the practice be banned.

tortoise and hare

When over a year ago Mary Jo White appeared before the Senate for her confirmation hearing as chair of the SEC, she said that appraisal of the impact of high-speed trading on the markets would be a “very, very high priority” and spoke of a “sense of urgency”. Yet here we are with nothing done and Michael Lewis way ahead of the government. She now says, “I think you really do want to do a soup to nuts review” that begins with the assumption that “the markets are not rigged”.

a tax that almost everyone could love

So, taking stock, so to speak, what do we have here? A parallel universe of higher-frequency and higher-speed traders than the rest of the market, more than doubling the volume of the market every day with blizzards of in and out trades. And not even actual trades, necessarily. A high percentage of that volume is simply feelers — trades put on the wire only to discover the buy or sell price ahead of everyone else, but instantly canceled. These companies jump the line to get ahead of everyone else, siphon away money, adding no value and serving no public good. “Computerized scalping” in Lewis’ phrase.

It is in the market’s best interest to cut the pointless traffic, and the surest method is a tax on trading, which was the solution we arrived at in our previous article in October 2012. With shabby tactics newly laid bare by the Michael Lewis book, that proposal
has come up. A tax on trading is nothing new; John Maynard Keynes once proposed it. And there was a transfer tax levied on sales by New York until 1981 (rather, it is still imposed and — words fail — refunded back to the brokers that paid it).

Trouble is, a tax on all stock trades is what is always broached, which would penalize everyone for no explicable reason unless it is to guarantee that no legislature will touch it. Clearly, as we put forth originally, any tax should be based formulaically on the volume of trades launched daily by a firm, and engineered to be zero for the typical banks, brokers, hedge funds, etc. trading at human speed and in human quantities.

The effect would be miraculous: plenty of money raised at the outset as a penalty for the burden imposed on order flow and the exchanges, quickly followed by greatly reduced volume when the high-speed traders realize how much their manic frenzy is costing them. But market manipulation seems to be a topic that flares up now and again, then fades, with nothing having been fixed, and that has left individual investors with the belief that this system, too, is rigged against them.

Finally, Someone in the Obamacare Mess Got Fired

Perhaps they were just being gallant not to probe further, but the news media dutifully reported Kathleen Sebelius’ abrupt departure from her post as Secretary of the Health and Human Services (HHS) agency as a resignation. The Affordable Care Act was forecast well before its launch to be a “train wreck” by those on the right anxious to be proven right, but at time time the disastrous ill-preparedness of the website being developed by her agency was unknown. Republicans, with their 40–plus repeals of Obamacare in the House, would today still be ceaselessly attempting to undermine the Act even if the launch had gone
Announcement of 7.1 million sign-ups, but Secretary Sebelius not at the podium
well, but the miserable performance of HHS was a surprise gift that conferred validation to their cause like nothing else they could have wished for.

Sebelius was fired (or asked to resign; same thing), make no mistake. Like Kremlinologists divining power shifts by observing who was present and who missing in the Soviet Union’s leadership at the May Day parades, we should take note that, when President Obama stood in the Rose Garden on April 2 at the end of six months of open enrollment to announce that 7.1 million had signed up, at his side stood Vice President Joe Biden. Where was Kathleen Sebelius? She was in attendance but went unmentioned in the President’s thank yous.

It must have come as something of a surprise for her. Sebelius announced her resignation and was effectively gone — no notice — no announcing that she would leave at the end of some future month, as is the usual practice. On “Meet the Press”, two days after her alleged resignation was announced, Andrea Mitchell popped the question: “People are asking, were you pushed or did you jump?” to which the secretary averred that she had thought “at the end of open enrollment was a logical time to leave” and had earlier told the President “you really should begin to look for the next secretary”.

But that doesn’t square with what she had said days earlier to a Huffington Post interviewer who asked, “Do you see yourself sticking around until November for round two”. “Well, absolutely”, she answered. “So you’re staying for a while?” “I’m in” said Sebelius. That was March 31. Two weeks later she was out.

And with scarcely a skipped beat, the President announced his replacement appointment, Sylvia Matthews Burwell, currently the director of the White House Office of Management and Budget. Senate Republicans would have some explaining to do were they to block Ms Burwell after confirming her appointment as budget director 96 to 0. But it is expected that they will take the opportunity of her confirmation hearings to put all the faults of the Affordable Care Act on display.

lest we forget

There had been calls for madam secretary to resign, as the one ultimately responsible for the botched system, but Obama chose to wait it out until the final sign-up deadline before showing her the door. Sooner would have been an admission of failed management, which would redound to the President.

Which it certainly should.

Mark Shields, who holds up the left end of the weekly debate with fellow columnist and conservative David Brooks on Friday’s PBS NewsHour, acknowledged that he had known Kathleen Sebelius for 46 years. He worked to shift blame, calling modern cabinet chiefs no more than figureheads, that

“everything is micro-managed from the White House. The idea that the healthcare plan, the biggest initiative of this administration…was not going to be managed from the White House … just couldn’t be true…They were in it up to their eyebrows so when it went wrong , somebody had to take the hit, and that was Kathleen Sebelius.”.

But the truth was precisely the opposite. When the site blew up we had said, “You’ve got to wonder, how could the President have paid so little attention to the status of what is endlessly called his ‘signature’ achievement that he would say on the same day the government’s Internet insurance exchange crashed that people will be able to shop ‘the same way you’d order a plane ticket on Kayak or a TV on Amazon’”. Hadn’t he even tried it? In the evening hours in the White House residence, wasn’t he curious from time to time before launch to see if it worked? And to be all over HHS when he found out it didn’t?

Instead, he had apparently taken the word of the equally non-technical Sebelius that “we’re on target”, as she said in a July interview after months of “projecting optimism and confidence”?

On the NewsHour, David Brooks added, “It is also true the secretaries do not run their agencies … the agencies run the agencies”. Tell that to Rumsfeld and Gates. Even if true, if “Yes, Minister” has crossed the Atlantic and the bureaucrats work to confound the boss, does it therefore become an excuse for Sebelius not to have any idea that the premier product of her agency was in trouble? It was for her to sound the alarm repeatedly in the months leading up to the roll-out. Instead, reports were that she misallocated her time traveling the country to promote Obamacare, instead of constantly monitoring the progress of the hugely complex system. Instead, a Wall Street Journal editorial called HHS credibility “a running joke”.

There was a redeeming moment in that HuffPost interview. Sebelius said she had been touring call centers around the country to rally the 14,000 workers at 17 sites who manned the phones to answer questions. “I can’t tell you how many of the call center workers tell me that they feel like they’re doing the most important work they’ve ever done”, said Ms Sebelius. “People are in tears of joy; they tell them personal stories, family stories, about finally having the opportunity to make sure they won’t go bankrupt if they get sick, that they can take care of their kids and their family. They never thought they would have this opportunity”.

Ukraine? Where’s That?

Three weeks after Putin annexed Crimea, a Washington Post poll found that only 1 in 6 Americans can find Ukraine on a map. The other 5 think it is just about anywhere. Each dot on this map shows where those polled think it is located. As seen by the dots, a few even think it is in the United States.

The poll also found this oddity: “The less Americans know about Ukraine’s location, the more they want the U.S. to intervene”. That’s worrisome if Congress doesn’t know geography.

Supreme Court Gives Us Citizens United 2.0

Chief Justice John Roberts may have said in his Senate confirmation hearings that he would act only as an “umpire” at the Supreme Court, but instead he and
his conservative cohort is clearly following an activist agenda, twice now overturning settled campaign finance law of almost 40 years ago. In a 5-to-4 decision with the usual right-left alignment, the Court has opened a second floodgate for money to flow into political campaigns, deciding in McCutcheon v. Federal Election Commission that there should be no aggregate limit to how much an individual is allowed to give to candidates for public office.

The decision compounds the Court’s searingly controversial 2010 Citizens United ruling that said corporations, unions and other organizations are “persons” under the law, entitled to free speech in the form of money, and should therefore be free to donate however much they choose to PACs and other groupings as long as they have no direct connection to candidates.

With the limit on spending removed, we can now expect to see a tsunami of “outside” money flooding into a state to persuade us to vote for candidates pledged to support the outsiders’ agenda rather than the interests of the state. All politics will no longer be local.

money talks

Both Court decisions stem from and greatly extend 1976’s foundational case, Buckley v. Valeo, which put forth the controversial tenet that the spending of money equates to free speech. The five conservative justices embrace without reservation this original perversion that the First Amendment, meant to protect an individual from retaliation for speaking out against the government, allows money to be used to saturate the media with a wealthy individual’s views nationwide. Entirely ignored now is the distortion of the principles of democracy when the bullhorn of unlimited spending gives a louder voice to those with greater wealth and denies what should be the equal right of those without to be heard.

It is difficult to avoid the conclusion that this Court has chosen to move the country ever closer to a plutocracy. Clarence Thomas, of course voting with the majority, even wrote an opinion for McCutcheon proposing that campaign donation limits to a candidate be eliminated altogether. The Court may be signaling its intent to consider that next step. It had even granted time in McCutcheon‘s October hearing to Senate Minority Leader Mitch McConnell’s lawyer, whose brief asked the court to do just that, to overturn Valeo’s maximum gift per candidate altogether. The conservative wing of the Court seems to be edging toward a society in which the wealthiest will be able to effectively buy politicians and dictate their votes in return for directly funding their campaigns and livelihoods.

Roberts’ majority opinion contains this remarkable sentence:

“If the First Amendment protects flag burning, funeral protests and Nazi parades — despite the profound offense such spectacles cause — it surely protects political campaign speech despite popular opinion.”

He thus finds no difference between the demonstrations staged by cranks and the need to protect the institutions of our democracy. He equates those small and local disturbances with political campaigns conducted nationwide paid for by the wealthiest among us. He finds that the only objection to the unleashing of unlimited money into campaign finance is that the message might offend some, not that the money distorts the electoral process and can lead to corruption.

corruption? what corruption?

Valeo held that the government has an interest in preventing the “appearance of corruption” where large contributions by an individual to a candidate would suggest that a “quid quo pro” reward might be in the offing. That justified in that landmark case the government’s moderating its newly minted idea that money is a form of speech with one of its limits stipulating how much a donor can give to eachcandidate, a limit that survives in the McCutcheon ruling.

Erin Murphy, the attorney for McCutcheon, speaking on PBS’s NewsHour, said that one remaining Valeo limit suffices to prevent corruption, that

“the court said the only proper way to think about corruption is quid pro quo corruption because, if you go broader than that there’s simply no way to draw the limit without infringing on First Amendment rights”.

Chief Justice Roberts’ opinion contains this passage, dumbfounding in its naïveté (or is it dishonesty?):

“Spending large sums of money in connection with elections, but not in connection with an effort to control the exercise of an officeholder’s official duties, does not give rise to such quid pro quo corruption. Nor does the possibility that an individual who spends large sums may garner ‘influence over or access to’ elected officials or political parties.”

Michael Waldman, CEO of the Brennan Center for Justice, which filed an amicus brief on the side of the government, was also on the NewsHour and said, “Chief Justice Roberts said basically trying to use your money to get influence with members of Congress, well, that’s the heart of the First Amendment”. The Brennan Center issued a statement which said:

“Most alarming is the jurisprudential direction the Court is taking: that laws can only prohibit quid pro quo corruption of the narrowest, almost imaginary sort. (Think “American Hustle”/Abscam. A video of someone in costume giving cash in a suitcase in explicit exchange for a legislative favor — that’s corruption. Everything else is glorious free speech.”

Justice Anthony Kennedy — the swing voter that puts the 5 in 5-to-4 decisions — wrote in his Citizens United opinion that “political speech cannot be limited based on a speaker’s wealth”, that the government’s interest in controlling such speech-by-checkbook is “limited to quid pro quo corruption” and thinks concerns for such corruption are overblown. He gave us a glimpse of just how remote from political reality a justice can become over long tenure when, in his opinion for Citizens United he wrote that because contributors “may have influence over or access to elected officials does not mean that those officials are corrupt”.

hypothetical outcomes

Why not allow an individual to contribute to as many candidates as desired? Where’s the corruption in that, as long as the limit per candidate is in place?

The previous aggregate limit was $48,600; that was the maximum amount of money one could give to a number candidates for federal office, each receiving no more than $2,600 in each two-year election cycle. If that restriction were removed, as it now has been, a lower court had calculated that a wealthy individual could contribute as much as $3,500,000 spread on every candidate, party, PAC, state committee and so on, all the while adhering to the $2,600 limit per candidate. This has inspired a fear that organizers could “leverage contributions from individuals into huge sums to support their campaigns”, imaginings that earned the derision of Justices Antonin Scalia and Samuel Alito when the case was heard last October, Alito calling such scenarios “wild hypotheticals that are not obviously plausible.”

In fact, we could well expect organizers to set up joint fund-raising committees to bring together like-minded donors, each intending to spread money on a myriad of candidates, with each donor’s gift constituting what might be called a “layer”, and the layers adding to thick stack of money to seductively tempt each candidate applying for the group’s support. Can it really be imagined that a given candidate will be awarded a wedge of that layer cake if he or she does not pledge to return the favor by introducing or backing the legislation that the organization seeks?

New York Times columnist David Brooks doesn’t see it that way. He applauds the decision, believing that it will return power to political parties, greatly weakened by 2002’s McCain-Feingold law that made money contributed to the parties, so-called “soft money”, subject to the federal limits on contributions by individuals. This sent money from

“tightly regulated parties to the shadowy world of PACs and 527s…Parties are not perfect, Lord knows. But they have broad national outlooks. They foster coalition thinking. They are relatively transparent. They are accountable to voters. They ally with special interests, but they transcend the influence of any one.”

Because they can now give far more money directly to candidates with the $48,600 limit gone, Brooks’ thesis is that the big money donors will depart the PACs and 527s and channel their cash into the political parties.

Even if true, that raises questions. Brooks’ implication is that the parties are free to allocate that money as they choose, to concentrate firepower to get rid of a particular incumbent from the opposite party, for example. But aren’t donors, who in his scenario will now be giving vast sums to political party organizations, aren’t they still governed by Valeo’s $2,600 per candidate per year limit? Isn’t the political party in turn bound by that law to allocate their money in accordance with the candidates and dollar amounts the contributor has stipulated?

Second, as Brooks himself acknowledges, “donors tend to be more extreme than politicians or voters”. When you think of the agendas of the likes of Sheldon Adelson, George Soros, the Koch Brothers, etc., are they likely to call off their narrow issue campaigns and contentedly consign their money to the “broad national outlooks” of the party organizations? Aren’t they more likely to set up their own joint fund-raising committees as separate as before from the political party organizations, as we describe above, where they will instead anoint candidates who pledge to toe their lines in return for that free speech money?