Stratfor on Obama’s Choices in Iran and Afghanistan

I am on the record as someone who thinks the war in Afghanistan, as currently contemplated, is a waste of US blood and treasure.  I was also someone who was hopeful that Bush could have figured out some way to pull a "Nixon-goes-to-China" by opening relations with Iran.  He did not live up to that hope.  Obama has suggested the he would reach out to Iran, but it usually doesn't work that way.  Iran views Obama as a dove and thus is plowing ahead with its nuclear program figuring it will not face any real consequences.

George Friedman of Strategic Forecasting ("Stratfor") lays out Obama's choices in the article attached below.  He also thinks Afghanistan is basically unwinnable in the near term.  He also thinks that Obama is being backed in to making his choice soon.

1. He can attack Iran and increase forces in Afghanistan (still leaving us stuck in Afghanistan)
2. He can withdraw from Afghanistan and ignore Iran (leaving all our allies in the lurch)
3. He can increase forces in Afghanistan and ignore Iran (the worst outcome)
4. He can withdraw from Afghanistan and attack Iran (the most logical strategy, politics aside)

Neither of these options seems particularly attractive.



By George Friedman

During the 2008 U.S. presidential campaign, now-U.S. Vice President Joe Biden said that like all U.S. presidents, Barack Obama would face a foreign policy test early in his presidency if elected. That test is now here.

His test comprises two apparently distinct challenges, one in Afghanistan and one in Iran. While different problems, they have three elements in common. First, they involve the question of his administration's overarching strategy in the Islamic world. Second, the problems are approaching decision points (and making no decision represents a decision here). And third, they are playing out very differently than Obama expected during the 2008 campaign.

During the campaign, Obama portrayed the Iraq war as a massive mistake diverting the United States from Afghanistan, the true center of the "war on terror." He accordingly promised to shift the focus away from Iraq and back to Afghanistan. Obama's views on Iran were more amorphous. He supported the doctrine that Iran should not be permitted to obtain nuclear weapons, while at the same time asserted that engaging Iran was both possible and desirable. Embedded in the famous argument over whether offering talks without preconditions was appropriate (something now-U.S. Secretary of State Hillary Clinton attacked him for during the Democratic primary) was the idea that the problem with Iran stemmed from Washington's refusal to engage in talks with Tehran.

We are never impressed with campaign positions, or with the failure of the victorious candidate to live up to them. That's the way American politics work. But in this case, these promises have created a dual crisis that Obama must make decisions about now.


Back in April, in the midst of the financial crisis, Obama reached an agreement at the G-8 meeting that the Iranians would have until Sept. 24 and the G-20 meeting to engage in meaningful talks with the five permanent members of the U.N. Security Council plus Germany (P-5+1) or face intensely increased sanctions. His administration was quite new at the time, so the amount of thought behind this remains unclear. On one level, the financial crisis was so intense and September so far away that Obama and his team probably saw this as a means to delay a secondary matter while more important fires were flaring up.

But there was more operating than that. Obama intended to try to bridge the gap between the Islamic world and the United States between April and September. In his speech to the Islamic world from Cairo, he planned to show a desire not only to find common ground, but also to acknowledge shortcomings in U.S. policy in the region. With the appointment of special envoys George Mitchell (for Israel and the Palestinian territories) and Richard Holbrooke (for Pakistan and Afghanistan), Obama sought to build on his opening to the Islamic world with intense diplomatic activity designed to reshape regional relationships.

It can be argued that the Islamic masses responded positively to Obama's opening — it has been asserted to be so and we will accept this — but the diplomatic mission did not solve the core problem. Mitchell could not get the Israelis to move on the settlement issue, and while Holbrooke appears to have made some headway on increasing Pakistan's aggressiveness toward the Taliban, no fundamental shift has occurred in the Afghan war.

Most important, no major shift has occurred in Iran's attitude toward the United States and the P-5+1 negotiating group. In spite of Obama's Persian New Year address to Iran, the Iranians did not change their attitude toward the United States. The unrest following Iran's contested June presidential election actually hardened the Iranian position. Mahmoud Ahmadinejad remained president with the support of Supreme Leader Ayatollah Ali Khamenei, while the so-called moderates seemed powerless to influence their position. Perceptions that the West supported the demonstrations have strengthened Ahmadinejad's hand further, allowing him to paint his critics as pro-Western and himself as an Iranian nationalist.

But with September drawing to a close, talks have still not begun. Instead, they will begin Oct. 1. And last week, the Iranians chose to announce that not only will they continue work on their nuclear program (which they claim is not for military purposes), they have a second, hardened uranium enrichment facility near Qom. After that announcement, Obama, British Prime Minister Gordon Brown and French President Nicolas Sarkozy held a press conference saying they have known about the tunnel for several months, and warned of stern consequences.

This, of course, raises the question of what consequences. Obama has three choices in this regard.

First, he can impose crippling sanctions against Iran. But that is possible only if the Russians cooperate. Moscow has the rolling stock and reserves to supply all of Iran's fuel needs if it so chooses, and Beijing can also remedy any Iranian fuel shortages. Both Russia and China have said they don't want sanctions; without them on board, sanctions are meaningless.

Second, Obama can take military action against Iran, something easier politically and diplomatically for the United States to do itself rather than rely on Israel. By itself, Israel cannot achieve air superiority, suppress air defenses, attack the necessary number of sites and attempt to neutralize Iranian mine-laying and anti-ship capability all along the Persian Gulf. Moreover, if Israel struck on its own and Iran responded by mining the Strait of Hormuz, the United States would be drawn into at least a naval war with Iran — and probably would have to complete the Israeli airstrikes, too.

And third, Obama could choose to do nothing (or engage in sanctions that would be the equivalent of doing nothing). Washington could see future Iranian nuclear weapons as an acceptable risk. But the Israelis don't, meaning they would likely trigger the second scenario. It is possible that the United States could try to compel Israel not to strike — though it's not clear whether Israel would comply — something that would leave Obama publicly accepting Iran's nuclear program.

And this, of course, would jeopardize Obama's credibility. It is possible for the French or Germans to waffle on this issue; no one is looking to them for leadership. But for Obama simply to acquiesce to Iranian nuclear weapons, especially at this point, would have significant diplomatic and domestic political ramifications. Simply put, Obama would look weak — and that, of course, is why the Iranians announced the second nuclear site. They read Obama as weak, and they want to demonstrate their own resolve. That way, if the Russians were thinking of cooperating with the United States on sanctions, Moscow would be seen as backing the weak player against the strong one. The third option, doing nothing, therefore actually represents a significant action.


In a way, the same issue is at stake in Afghanistan. Having labeled Afghanistan as critical — indeed, having campaigned on the platform that the Bush administration was fighting the wrong war — it would be difficult for Obama to back down in Afghanistan. At the same time, the U.S. commander in Afghanistan, Gen. Stanley McChrystal, has reported that without a new strategy and a substantial increase in troop numbers, failure in Afghanistan is likely.

The number of troops being discussed, 30,000-40,000, would bring total U.S. and NATO forces in Afghanistan to just above the number of troops the Soviet Union deployed there in its war (just under 120,000) — a war that ended in failure. The new strategy being advocated would be one in which the focus would not be on the defeat of the Taliban by force of arms, but the creation of havens for the Afghan people and protecting those havens from the Taliban.

A move to the defensive when time is on your side is not an unreasonable strategy. But it is not clear that time is on Western forces' side. Increased offensives are not weakening the Taliban. But halting attacks and assuming that the Taliban will oblige the West by moving to the offensive, thereby opening itself to air and artillery strikes, probably is not going to happen. And while assuming that the country will effectively rise against the Taliban out of the protected zones the United States has created is interesting, it does not strike us as likely. The Taliban is fighting the long war because it has nowhere else to go. Its ability to maintain military and political cohesion following the 2001 invasion has been remarkable. And betting that the Pakistanis will be effective enough to break the Taliban's supply lines is hardly the most prudent bet.

In short, Obama's commander on the ground has told him the current Afghan strategy is failing. He has said that unless that strategy changes, more troops won't help, and that a change of strategy will require substantially more troops. But when we look at the proposed strategy and the force levels, it is far from obvious that even that level of commitment will stand a chance of achieving meaningful results quickly enough before the forces of Washington's NATO allies begin to withdraw and U.S. domestic resolve erodes further.

Obama has three choices in Afghanistan. He can continue to current strategy and force level, hoping to prolong failure long enough for some undefined force to intervene. He can follow McChrystal's advice and bet on the new strategy. Or he can withdraw U.S. forces from Afghanistan. Once again, doing nothing — the first option — is doing something quite significant.

The Two Challenges Come Together

The two crises intermingle in this way: Every president is tested in foreign policy, sometimes by design and sometimes by circumstance. Frequently, this happens at the beginning of his term as a result of some problem left by his predecessor, a strategy adopted in the campaign or a deliberate action by an antagonist. How this happens isn't important. What is important is that Obama's test is here. Obama at least publicly approached the presidency as if many of the problems the United States faced were due to misunderstandings about or the thoughtlessness of the United States. Whether this was correct is less important than that it left Obama appearing eager to accommodate his adversaries rather than confront them.

No one has a clear idea of Obama's threshold for action.

In Afghanistan, the Taliban takes the view that the British and Russians left, and that the Americans will leave, too. We strongly doubt that the force level proposed by McChrystal will be enough to change their minds. Moreover, U.S. forces are limited, with many still engaged in Iraq. In any case, it isn't clear what force level would suffice to force the Taliban to negotiate or capitulate — and we strongly doubt that there is a level practical to contemplate.

In Iran, Ahmadinejad clearly perceives that challenging Obama is low-risk and high reward. If he can finally demonstrate that the United States is unwilling to take military action regardless of provocations, his own domestic situation improves dramatically, his relationship with the Russians deepens, and most important, his regional influence — and menace — surges. If Obama accepts Iranian nukes without serious sanctions or military actions, the American position in the Islamic world will decline dramatically. The Arab states in the region rely on the United States to protect them from Iran, so U.S. acquiescence in the face of Iranian nuclear weapons would reshape U.S. relations in the region far more than a hundred Cairo speeches.

There are four permutations Obama might choose in response to the dual crisis. He could attack Iran and increase forces in Afghanistan, but he might well wind up stuck in a long-term war in Afghanistan. He could avoid that long-term war by withdrawing from Afghanistan and also ignore Iran's program, but that would leave many regimes reliant on the United States for defense against Iran in the lurch. He could increase forces in Afghanistan and ignore Iran — probably yielding the worst of all possible outcomes, namely, a long-term Afghan war and an Iran with a nuclear program if not nuclear weapons.

On pure logic, history or politics aside, the best course is to strike Iran and withdraw from Afghanistan. That would demonstrate will in the face of a significant challenge while perhaps reshaping Iran and certainly avoiding a drawn-out war in Afghanistan. Of course, it is easy for those who lack power and responsibility — and the need to govern — to provide logical choices. But the forces closing in on Obama are substantial, and there are many competing considerations in play.

Presidents eventually arrive at the point where something must be done, and where doing nothing is very much doing something. At this point, decisions can no longer be postponed, and each choice involves significant risk. Obama has reached that point, and significantly, in his case, he faces a double choice. And any decision he makes will reverberate.

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Copyright 2009 Stratfor.

David Brooks backs up The Dynamist

I was pleased to read David Brooks' column today in the New York Times that (more eloquently) furthers the theme of my last article, "Post-Lehman: The Banking Oligopoly Reigns Supreme", albeit from a slightly different angle.  My thesis was that the Obama administration has laid out, and is executing on, a very Hamiltonian restructuring of the financial system, while the Republicans seem to be migrating into the classic Jacksonian camp.  This was interesting to me because the two parties are switching places, with the Democrats moving away from their Southern agrarian roots (the Jeffersonian / Jacksonian camp) toward becoming the party of Northern urban elites (the Hamiltonian camp).  The Republicans are making the opposite migration.  I was focused on finance, because that is the classic cleavage between Hamiltonians and the Jeffersonians dating back to the beginning of the Republic.

David Brooks takes it a step further to use the ancient split as the metaphor to the whole populist reaction to the Obama administration.  He (accurately) dismisses the most-popular explanation that has been floating around: that these rubes can't handle the fact that we have a black president.  He and I believe the reaction to Obama's policies would have been the same if he were white.  While I agree with many of president Obama's goals (and, to a lesser extent, policies), his platform is a classic "we know what's best for you" set of policies being aggressively pushed by an administration that seems to consist mostly of college professors.  You don't have to be a racist hick to be alarmed by the massive changes to a huge portion of our economy paid for with an ungodly sum of borrowed money pushed by an elitist group of people with very little "real world" experience.

The Hamiltonians have always favored strong federal authority,
centralized financial power, the use of federal debt and strong
intervention in the economy to promote favored industries.  The
Jeffersonians and Jacksonians distrusted the urban elites that pushed
these policies and believed that such policies bred corruption and
therefore favored diffusing power among the people.  The history of the United States has always been driven by the tension between these two camps.  Whenever one side is given unchecked power, the other side goes crazy.

As Mr. Brooks puts it:

Barack Obama leads a government of the highly educated. His
movement includes urban politicians, academics, Hollywood donors and
information-age professionals. In his first few months, he has fused
federal power with Wall Street, the auto industry, the health care
industries and the energy sector.

Given all of this, it was
guaranteed that he would spark a populist backlash, regardless of his
skin color. And it was guaranteed that this backlash would be ill
mannered, conspiratorial and over the top — since these movements
always are, whether they were led by Huey Long, Father Coughlin or
anybody else.

What we’re seeing is the latest iteration of that
populist tendency and the militant progressive reaction to it. We now
have a populist news media that exaggerates the importance of the Van
Jones and Acorn stories to prove the elites are decadent and
un-American, and we have a progressive news media that exaggerates
stories like the Joe Wilson shout and the opposition to the Obama
schools speech to show that small-town folks are dumb wackos.

The Dynamist tries to be as neutral an observer of events and trends as possible.  Both the Hamiltonians and the Jeffersonians have valid arguments, but they have different priorities, and those differences will never be bridged.  Thankfully, most Americans do not fall neatly into either camp and and are wary of aggressive policies from either side.

I just pray that, through all the Sturm und Drang, in the end the American center holds.

Post-Lehman: The Banking Oligopoly Reigns Supreme

Today marks the one-year anniversary of the Lehman Brothers failure, which led to the subsequent rescue actions by the Fed and the Treasury.  Many look at the rescue of AIG, the forced marriage of Merrill Lynch and Bank of America, the TARP, the conversion of Goldman and Morgan Stanley to bank holding companies and the massive increase in the Fed's balance sheet and think that the financial system was utterly transformed.  My view is that the crisis only served to accelerate trends that were already in place, and have been for the last 40 years.  Ironically, the reforms proposed by the Obama administration will mark the final destruction of the old New Deal financial framework and will lock in place a large-scale financial oligopoly.

The battle over the very banking and money is as old as the Republic.  The traditional battle lines are between the Hamiltonians that favored a banking oligopoly to control the money supply and rein in speculation, and the Jacksonians that were suspicious of power being concentrated among an East Coast banking elite and instead favored a "free banking" model of small banks spread throughout the country.  Between the Civil War and the Great Depression, the Hamiltonians (mostly Northeastern Republicans) held sway and banking power was concentrated among the big New York banks led by JP Morgan.  During the New Deal, FDR smashed the New York "Money Trust" and created a fragmented banking system that (1) spread banking power throughout the country by prohibiting interstate banking and even restricting bank branching and (2) separated the types of banks into thrifts, savings & loans, commercial banks and investment banks.

The diffuse nature of the banks limited large scale banking and resulted in the development of the securities market, which is why the US securities markets are much more robust than those of other countries such as Japan and in Europe that have traditionally relied more on bank financing.  It also meant that the US didn't have any global-scale banks as the world economy was becoming more globalized.

Starting in the 1970s, the US government embarked on a piece-by-piece dismantling of the New Deal regulatory framework.  As the commercial banks grew very large and were permitted to enter the securities business in the late 1990s, the investment banks, who traditionally had much smaller capital bases than commercial banks, felt the need to expand their balance sheet to compete, which meant taking on more leverage.  Couple the high leverage with over-confidence in financial innovations such as modern portfolio theory, derivatives math and value at risk measures, the investment banks got overextended and finally succumed to a classic run-on-the-bank.

The result was the forced merger of the investment banking system into the money-center commercial banks.  We now have sitting atop our national financial system an oligopoly of six massive firms: JP Morgan, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley.  These six firms together dominate the market for securities underwriting, syndicated loans, derivatives trading, prime brokerage, non-agency mortgage securities underwriting and credit cards.  The federal government now effectively controls the mortgage market and is in the process of pushing private lenders out of the student loan business.  Oh, and at least temporarily it now has a huge chunk the market for US auto loans through its ownership of GMAC and Chrysler Financial.

Given the trends that were in place, this turn of events was unavoidable, unfortunately.  The reforms proposed by the Obama administration are the logical culmination of this system.  Creating a unified regulator, bolstering capital levels, limiting risk-taking, even the proposed consumer protection agency all have the effect of locking-in a conservative financial oligopoly.  Viola, you have the re-creation of the concept behind Alexander Hamilton's Bank of the United States.

Personally, given the choices on the table, I favor this outcome.  The current system of privatized profits and socialized losses is preposterous and literally threatens our democracy by turning the public against the business community.  The banking system, as long as it operates under a fractional reserve model (i.e. with leverage) is intertwined with the money supply in such a way that we can't pretend that it can exist as a truly free market.  The size of the banking system's liabilities relative to its assets is so large, that unless the government is willing to risk the aftermath of a massive debt deflation it will always be forced to step in to bail out the banks when they run into trouble, which they periodically will do.  So Obama's Hamiltonian vision should be supported by centrists as the least extreme potential outcome.

The Republicans, now the naturally the party of the South, the Mountain West and Sunbelt, will likely migrate into the Jacksonian camp.  There is just no upside for the Republican Party to continue to support the current system, as the financial industry is clearly trending Democratic and is based in the super-blue states of New York, Connecticut, New Jersey and Illinois.  You see glimmers of this trend with the (at the time irresponsible) refusal to support the bank bailout, but we have yet to see a positive reformist vision emerge.  My Jacksonian solution would be to force a downsizing of the big six, not in scope, but in scale.  Jacksonians should favor a the migration away from large scale banking and to the securities market.  Just because the CDO math was wrong for the last ten years doesn't mean that securitization itself is a bad idea.  Perhaps moving to a "covered bond" model, where the bank holds 20% of the securities it underwrites, would strike the right balance.

The debate over the nature of banking and money has been raging in the United States has been for a long time.  Jefferson vs. Hamilton, Jackson vs. the Second Bank of the United States, William Jennings Bryan vs. the Gold Standard, FDR vs. the Money Trust…these great ideological battles over banks and centralized financial power have occurred periodically throughout our history.  Ironically, it appears that the parties are switching sides as they have switched their traditional North-South alignment.  While the battle lines between left and right are still blurry, they are clearly being redrawn with the Democrats slowly embracing the vision of their ancient enemy, Alexander Hamilton.