Obama’s Iraq Fumble

By KARL ROVE

In a race supposedly dominated by the economy, both Barack Obama and John McCain have spent a lot of time talking about Iraq. Why? Because both men have Iraq problems that are causing difficulties for their campaigns.

How each candidate resolves his Iraq problems may determine who voters come to see as best qualified to set American foreign policy.

Martin Kozlowski

If Mr. McCain wins the argument on Iraq, he will add to his greatest strength — a perceived fitness to be commander in chief and lead the global war on terror. As the underdog, Mr. McCain needs to convince voters that he is overwhelmingly the better choice on the issue.

Mr. Obama needs to win the argument because his greatest weakness is inexperience and a perceived unreadiness to be president. That’s dangerous. Voters believe keeping America safe and strong is a president’s most important responsibility.

Mr. McCain’s first Iraq problem is that he favored removing Saddam Hussein when it was popular — 76% of Americans thought it was worth going to war in April 2003 — and has maintained his support of the war even as it grew to be unpopular. In January, only 32% of Americans said the war was worth it.

Mr. McCain’s second Iraq problem is that the success of the surge he advocated has made it easier for voters to believe we can accelerate the drawdown of U.S. troops. This belief makes Mr. Obama’s proposal to withdraw in 16 months seem more reasonable.

Mr. McCain’s position was further complicated recently when Iraqi Prime Minister Nouri al-Maliki seemed to give a semiendorsement of Mr. Obama’s withdrawal plan. Mr. Maliki actually agrees with Mr. McCain that a timetable should be aspirational and based on conditions on the ground, which is why he said U.S. troops should be withdrawn by 2010 “if possible.”

Some Iraqis are anxious to have American troops leave and some are not — which is why Mr. Maliki treads a fine line on withdrawal. Unfortunately for Mr. McCain, this only complicates things for his campaign.

Mr. Obama’s problem is he opposed the policy that created the progress that makes victory in Iraq possible. Mr. Obama’s unbending opposition to the surge undermines his fundamental argument that he has better judgment on national security. Mr. McCain needs to use Mr. Obama’s retrospective mistake to shape voters’ prospective conclusion, convincing them that Mr. Obama’s badly flawed judgment on the surge shows he cannot be trusted with major foreign-policy decisions.

Mr. Obama also created a problem by canceling a visit to U.S. soldiers who were wounded in Iraq and are now recuperating at Landstuhl hospital in Germany. His campaign has offered a welter of explanations. What’s the real one? My rule is that when in doubt, see what a candidate said at the time and judge his candor. In a July 26 London news conference, Mr. Obama explained: “I was going to be accompanied by one of my advisers, a former military officer. And we got notice that he would be treated as a campaign person, and it would therefore be perceived as political because he had endorsed my candidacy, but he wasn’t on the Senate staff.”

The solution was obvious. Leave the campaign adviser behind and visit the wounded troops. Mr. Obama’s decision to work out in the hotel gym instead adds to his growing reputation for arrogance.

Most importantly, Mr. Obama missed the opportunity to show he can admit a mistake. He could have said that what he saw on his visit to Iraq convinced him that the surge was right and its success now allows U.S. troops to be safely drawn down. Instead, he insisted he was right to say the surge wouldn’t work.

That may give voters pause. If Mr. Obama can’t admit the surge worked after the fact, how can voters count on him to keep his mind open to the facts on other important foreign-policy decisions?

Mr. Obama should not be misled by polls showing support for a timetable. Opinion surveys are notoriously unreliable in gauging public opinion on a complicated question like Iraq.

Americans can simultaneously support a withdrawal timetable and also insist that the withdrawal occur only when conditions justify it and military leaders recommend it. For instance, Gallup polls have shown that 69% of Americans think we should set a timetable for withdrawal, but 65% also want to establish stability and security before withdrawing. Like Messrs. McCain and Maliki, Americans are for an aspirational and conditional timetable. They want to win.

The conventional wisdom has been that this election will be decided on the economy. That will be crucial, but so is Iraq. And it makes perfect sense. We are, after all, a nation at war. And in wartime, electing a president who will win should matter most of all.

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

Why Obama Should Pick Hillary

By LANNY J. DAVIS

Picking a vice president is obviously Barack Obama’s decision to make. He must be comfortable with who he picks. Comfort level between a president and vice president may be the most important factor of all.

So I can only offer my argument, based on some facts and subjective impressions, as to why I believe it would be in Sen. Obama’s personal and political interest to select Hillary Rodham Clinton as his vice presidential running mate. Not just to enhance his chances of winning — but, more important, to help him be a more effective president.

M.E. Cohen

Let’s start with one undisputable fact: Sen. Clinton is the only Democrat who gives Sen. Obama a statistically significant boost in any national poll results.

This is not a criticism of other candidates. This is simply a fact — a product of Sen. Clinton’s nearly 18-month national campaign in all 50 states and the 18 million votes she won. The result was a dramatic increase in her favorable ratings across the spectrum, even among some of her most conservative critics.

In late June, polls conducted by The Wall Street Journal/NBC and Fox/Opinion Dynamics — using entirely different samples — both showed Sen. Clinton giving Sen. Obama a +3% bump, pushing him over 51% for the first time, when the two of them were paired against Sen. McCain and Gov. Romney.

Most recently, in nationwide polling on July 22-23, a Fox/Opinion Dynamics poll showed a more dramatic bump of +8% with Sen. Clinton as Sen. Obama’s vice presidential running mate. In a head-on match, it was Sen. Obama 41% to Sen. McCain’s 40% (this was before the intense media coverage of his European trip). But with exactly the same sample, when all voters were presented with the choice of an Obama-Clinton ticket vs. McCain-Romney, the results were Obama-Clinton, 48% (+7%), and McCain-Romney 39% (-1%).

Can Sen. Obama win without Sen. Clinton on the ticket? Yes he can. Majorities favor his views on most of the economic issues. And his European trip was virtually flawless, demonstrating that he can walk, talk and act like a president in foreign affairs and with foreign leaders.

However, with Sen. Clinton on the ticket, I do not believe Sen. Obama can lose. She adds important strength to Sen. Obama’s in the key constituencies of women, blue-collar workers and senior citizens. And, thus, she could tip the balance in such key border states as West Virginia, Kentucky and Arkansas (not apparently in play for Sen. Obama as of now), as well as in the key battleground states of Ohio, Pennsylvania, Michigan and Florida.

So, considering this data, why not pick Sen. Clinton? Here are the three most repeated negatives that seem to concern sincere supporters of Sen. Obama the most:

- Sen. Clinton is polarizing and will rev up the Republican base.

In fact, the data proves the reverse is true: Sen. Clinton has little or no effect on Republican preferences in a race against Sen. McCain — and she helps Sen. Obama significantly among Democrats.

According to the July 22-23 Fox/Opinion Dynamics poll, in an Obama-McCain head-on match-up, Sen. Obama gets just 74% of the Democrats and 6% of the Republicans. With Sen. Clinton as his running mate vs. a McCain-Romney ticket, Sen. Obama’s Democratic vote goes up to 86% — a significant 12% increase. As for Republican voters, rather than getting “revved up” because of Hillary’s presence on the ticket, there was no effect at all: The Obama-Clinton ticket gains 3% (from 6% to 9% among Republicans), whereas McCain-Romney gains the same 3% (from 82% to 85%).

So what about independents? An Obama-Clinton ticket appears to gain some strength in this critical swing-voter group. With an Obama-McCain head-on contest, independents are evenly divided, 32%-30%, with Sen. Obama over Sen. McCain. But with an Obama-Clinton ticket vs. a McCain-Romney ticket, the independents favor Obama-Clinton 38%-30% — a statistically significant 6% increase in a crucial voter group.

- Choosing Sen. Clinton would be counter to the Obama message of “new politics” and change.

The simple answer: How can choosing the first woman vice president in the history of the United States be a choice for the status quo? How can choosing someone who can help the future President Obama bring to America its first affordable and effective national health insurance system reinforce the status quo rather than change? The answer is: Older doesn’t mean status quo. Hillary Clinton is a change agent and always has been throughout her public career. Barack Obama selecting her as the first female vice president would reinforce his change message, not detract from it.

- She would not be a team player, and her husband would be a distraction or worse in an Obama White House.

The answer here comes down to knowing Hillary and Bill Clinton as real people, not as cartoon characters. No one who knows either one of them believes there is a shred of truth to this widely held misperception.

Hillary Clinton is the ultimate team player and I have no doubt she would be an invaluable vice president. She knows from firsthand experience the importance of a supportive and involved vice president.

I am certain of this — not just because of my personal friendship with her over 39-plus years, in the best of times and in the worst of times. But also I know — and I believe even her critics would agree — that she is first and foremost a dedicated public servant. And she would do everything, everything, to help her president succeed because by doing so the nation and the American people would benefit. As long as I’ve known her, that has always been her life’s driving goal: public service to help people.

So what about Bill Clinton? Well, what about him? He loves his wife, he loves his country, and he would be 100% dedicated to helping a President Obama in any way the president wished. If that means being quiet and not distracting from the messages or issues the Obama White House is focusing on, Bill Clinton will do whatever it takes to be helpful.

Of course having a former president as the spouse of the vice president in the White House, much less someone with the intellectual power and star quality of Bill Clinton, will be a challenge to a President Obama and his White House. Few can deny that. But the last time I looked, Sen. Obama does pretty well dealing with challenges, even those his closest friends and confidantes are worried about.

In the final analysis, to repeat, this is Sen. Obama’s personal and political decision and he must be comfortable with the choice. I respect that. I honor that. These are my best arguments that it is in his political interest and his future administration’s interest to have Hillary Clinton by his side on the ticket as vice president — as a cheerleader and articulate supporter, as a candid adviser, and as a friend inside the White House with eight years of frontline experience of what it’s like.

Now it’s up to Sen. Obama. Whatever his decision, I will support it.

Mr. Paulson’s New Bonds

These days, it’s next to impossible to sell a mortgage-backed security — unless, like Fannie Mae and Freddie Mac, you have access to the full faith and credit of Uncle Sam. So this week Treasury Secretary Hank Paulson teamed up with four of the country’s biggest banks to jump start an alternative to securitization known as “covered bonds.”

A covered bond is a kind of halfway house between securitizing mortgages and simply holding them on bank balance sheets. With a covered bond, the bank gets the proceeds from selling the bonds now, while the investor gets the income from the mortgages. But unlike a mortgage-backed security, the bank doesn’t totally wash its hands of the mortgages if the borrowers default or get delinquent. So it’s easy to see their attraction at a time when securitization has become a dirty word.

We don’t pretend to know whether covered bonds are a product that American investors or banks will fully embrace, though they have flourished in Europe. There are U.S. regulatory and legal uncertainties about, for example, what happens if a bank that’s issued the bonds gets seized by regulators, and market uncertainties about how they’d be priced.

But as with all things mortgage-related these days, the giant twin elephants in the covered-bond room are named Fannie and Freddie. For decades, the mortgage-backed security dominated mortgage finance in this country in part because these two companies reigned supreme with their taxpayer-subsidized cost of capital and their single-minded focus on securitization.

We’ll never know whether Americans would have embraced covered bonds the way Europe has if Fannie and Freddie weren’t offering a competing, and government-subsidized, product. But going forward, any new product will have to compete against them for as long as they retain their privileged position. Their position casts a pall over any new innovation in the market for mortgage finance. It’s too bad Mr. Paulson didn’t mention that in his press conference.

The sooner Fan and Fred get out of the way, the sooner the market can tell us whether covered bonds, or some other new product, will be a useful way forward in our capital markets.

The End of Free Trade?

The demise of the Doha trade round is another blow to the struggling world economy, and there’s plenty of blame to go around. But the crucial question going forward is whether this is merely a temporary setback, or if it marks the end of the post-World War II free-trade era that has done so much to spread prosperity.

We tend by nature and history toward optimism, but no one should sugar-coat Doha’s collapse. For the first time since the multilateral trading rounds began after World War II, a trade expansion effort has ended in failure. Trade negotiations are never perfect, but for half a century the trend has been toward freer trade and more open markets. This has opened vast new opportunities for global business, spreading competition and innovation that have helped to raise living standards across the globe.

In 1990, trade represented about 40% of world GDP, according to the World Bank. By 2004, trade exceeded 55% of world GDP, and the global economy had expanded by 50%. The five fastest-growing countries from 1990 to 2004 were Albania, Bosnia and Herzegovina, China, Ireland and Vietnam, and all of them had annual double-digit increases in trade. Meanwhile, the countries that traded the least — Iran, many African countries — have stagnated.

So pervasive have the blessings of trade become that they are taken for granted. Americans hear a lot about textile plant closings in North Carolina, but they barely notice their expanded purchasing power thanks to Wal-Mart’s vast global supply network. Thirty years ago something as simple as cotton shirts and trousers were expensive; now they’re cheap. Fresh fruit was once rare in January; now it’s ubiquitous.

Manufacturing exports supported nearly six million U.S. jobs in 2006, a figure that has surely grown given the recent boom in U.S. sales abroad. Farm exports supported some 806,000 American jobs in 2005, a figure that has also surely grown with the booming world demand for U.S. corn, soybeans, wheat, meat and specialty crops.

Yet at Doha, all of this wasn’t enough to defeat the protectionists. The media spin of the moment is that this shows the rising power of the developing world. But the real dividing line in the world economy isn’t this updated version of the North vs. South 1950s cliché. The real battle is between those who want to expand this era of global trade and prosperity, and those who want to carve out their own protected niches.

The latter seems to include Indian Commerce Minister Kamal Nath, who is the main villain in this week’s failure. He preened as a Third World hero by refusing to open his country further to farm imports, insisting on a “special safeguard mechanism” that would have let countries jack up their tariffs if imports rose too rapidly. He claimed this would protect the “livelihood of millions of farmers” in India. But the rise of India’s middle class has coincided precisely with the move of millions from the countryside to cities, as well as India’s growing engagement with the world economy. More Indians will stay poorer longer because of his obstinance.

The U.S. political class also bears a substantial part of the blame. In its waning months, the Bush Administration has less power to persuade. But part of that weakness goes back to the original trade sins of its first two years. With its steel tariffs and overstuffed farm subsidy bill of 2002, the Administration sent a signal that domestic politics took precedence over U.S. global trade leadership. Its credibility never recovered.

Democrats in Congress have also spooked the world with their blatant protectionism — from their recent veto override of a farm bill jammed with trade-distorting subsidies, to their refusal to ratify bilateral trade deals even with such vital U.S. allies as Colombia and South Korea. Barack Obama’s promise to repudiate Nafta if Mexico and Canada won’t go along with his ideas was also a trade shock heard ’round the world. For all their talk about listening to America’s partners, Democrats are the world’s biggest trade bullies.

Having defeated Doha, the world’s protectionists will now press forward with their special-interest agendas, hoping to build a lattice-work of cartels and managed trade. One way to push back is with bilateral or regional trade pacts, but these also risk establishing regional cartels and a web of conflicting trade rules that raise business costs.

Doha’s failure is a lost opportunity, but it could become much worse if it galvanizes even part of the world to resort to the tariffs and currency devaluations that led to and exacerbated the Great Depression. It was precisely the bitter memory of that era that led the world’s postwar statesmen to build the GATT, the European Common Market, and the rest of free-trade system we now take for granted at our peril.

What the world really needs now is a fresh burst of global economic leadership — on currency movements, pro-growth tax policies, and free trade.

MPP-TV Profiles in Marijuana Reform: Milton Friedman, Ph.d.

America’s economy

Still on the right road

America’s economy has steered clear of recession so far. How long can it keep growing?

THE American economy has often defied predictions of its demise. It has done so again. Official figures published on Thursday July 31st show that America’s GDP rose at an annualised rate of 1.9% in the second quarter. This would a respectable enough growth rate at the best of times. That this was achieved despite the considerable handicaps of a badly damaged banking system, a big jump in oil prices and the ongoing housing bust, makes it remarkable.

Revisions to earlier quarters took some of the shine of the news. Government statisticians now reckon that the economy shrank in the final three months of last year: the annualised change to GDP was revised from 0.6% to -0.2%. But growth picked up slightly to 0.9% in the first quarter, so on this reading at least, America seems to have just steered clear of a technical recession—two consecutive quarters of contraction.

One reason why the economy has held up well is that the weak dollar has encouraged exports and curbed imports. American firms have been kept going by foreign sales during a period in which domestic spending has been somewhat hampered. In the two years since the housing bust started in earnest, the contraction in homebuilding has taken around one percentage point a year of GDP growth. That drag has been more or less fully offset by the boost from net trade. In the second quarter, exports net of imports accounted for all and more of the increase in GDP.

Spending at home has held up rather better than might have been expected, as well. Consumer spending picked up speed in the second quarter, lifted in part by the $86 billion of tax-rebate cheques that were sent out between the end of April and the start of July. The homebuilding industry shrank again, but at a slower rate than in previous quarters, and the dampening effect on the economy was partly offset by a big increase in the construction of commercial buildings.

The economy’s resilience, while remarkable, cannot be relied upon to last. Export growth is likely to soften, because America’s trading partners in the rich world are now struggling too. GDP growth in the euro area is grinding to a halt and Britain is teetering on the brink of recession. Japan’s economy may be flirting with one too.

Spending by American firms and households is also likely to soften. If consumers relied heavily on tax rebates to keep their spending going in the second quarter, there will be less cash left over to shell out in the coming months. And the lifeline provided by home-equity loans is increasingly constricted, as damaged banks cut back on pre-arranged credit lines. Firms will be more circumspect about investing—even if they could secure funding for big projects—if spending at home and abroad is set to turn down.

The Federal Reserve’s rate-setters, who meet on August 5th, have already bumped up their forecasts for GDP growth this year, because of the economy’s unexpected resilience. Some Fed officials are uncomfortable that interest rates are so low when headline inflation is at 5% and the economy is still growing at a decent rate. Yet most are still more concerned that the economy could yet nosedive as credit becomes scarcer. For that reason, the Fed is widely expected to keep interest rates on hold, at 2%, for a second successive meeting.

Despite these worries, the economy may still avoid a contraction in coming months, if only because American firms have run down their stocks so aggressively. GDP rose at an annualised rate of almost 4% in the second quarter, if the impact of reducing stocks is stripped out. If firms rebuild their inventories, or even stop slashing them, this will give GDP growth a big lift in the current quarter. Which means, the long-awaited American recession might still be some way off.

Mad Men of Washington Cheat Voters on Housing Law: Amity Shlaes

Commentary by Amity Shlaes

July 31 (Bloomberg) — Sometimes television and politics conspire to tell the country the same story. That’s certainly the case this week. The new season of “Mad Men” debuted with another episode chronicling Don Draper’s secret life. The ad man in the cable-TV series knows he’s not supposed to have that many drinks at lunch. He knows he’s living too hard when he smokes Lucky Strikes. He knows he shouldn’t cheat on his wife.

But he does it all anyhow. And he keeps doing it. Why? Because it is just so easy.

In the same hours as 2.1 million people switched on “Mad Men,” President George W. Bush was readying his pen to sign into law a bill he knew he shouldn’t sign — the new housing act. But he did it anyhow.

Why? It was just so easy.

The entire story of the federal involvement in U.S. housing is sort of a “Mad Men” episode of its own. Laws that were passed in the name of preventing crises often encouraged crises.

Consider the starting event in modern housing history, not to mention in the lives of the “Mad Men” — military service. In 1944, the country was enduring a housing crisis of a different magnitude. Tens of thousands of families lived in Quonset huts. Chicagoans were actually buying up trolley cars for homes.

One of Franklin Roosevelt’s last acts on the domestic side was to sign his own enormous housing bill for veterans. The government promised the soldiers in Europe and the Pacific there would be loans to help them buy houses when they got back. The law also protected with federal mortgage guarantees builders who constructed the homes. The idea was to enable vets to stride confidently out their own doors into postwar life.

`Rubbing Their Hands’

It all went down as smoothly as a rye old-fashioned. “The real estate boys read the bill, looked at one another in happy amazement and the dry, rasping noise they made rubbing their hands together could be heard as far as Tawi-Tawi,” a writer noted.

Such federal largesse gave rise to Levittown on Long Island and a construction boom in the rest of the country. This is how wives like Betty Draper ended up all the way out there in America’s Ossinings in the first place.

But there were also perverse consequences. The builders built cookie-cutter row houses that effectively downgraded the American home experience.

The new commuting pattern, along with that rye that their new salaries brought, facilitated those dual lives for family fathers. Without Betty a good hour away, Don would never have the time to spend all those hours with the downtown graphics designer in her doubtless rent-controlled pad.

Unhappy Bettys

Did you see the episode where Betty Draper lifts a gun and takes aim at her neighbor’s pet birds? Westchester County so disagreed with another housewife Betty — Betty Friedan — that she launched the feminist revolution. Suburbs were great, as “Mad Men” demonstrates, but they also drove, and still drive, any number of Americans out of their minds.

Still, the trend continued. In 1980, lawmakers lifted the bank deposit-insurance ceiling to $100,000 per account from $40,000. That said to depositors and bank officials: Invest where you like, you will be bailed out. The change contributed to bad governance, poor or fraudulent investment, and the very sort of crisis the ceiling increase was meant to prevent: the savings and loan debacle of a decade later.

Future Trouble

The current housing bill likewise pulls a “Mad Men.” It looks great, yet promises future trouble on as many levels as a Mies van der Rohe skyscraper. It’s hard to dislike the $15 billion that the legislation contains in tax incentives –there’s a tax credit of $7,500 for first-time buyers. But some of those buyers, like the subprime borrowers, simply aren’t ready to own a home.

The bill gives the Federal Deposit Insurance Corp. new tools to create institutions to shore up failing savings and loans. That sends a signal to the thrifts that they can do as they did in the 1980s — invest without regard to their responsibilities.

Fannie Mae and Freddie Mac get a new regulator, with the Treasury Department having more authority over the mortgage monsters. But their very existence, which is the single greatest cause of the current crisis, continued.

There’s additional material here, of course; indeed, enough for several seasons of episodes. Bear Stearns Cos.’s headquarters sits right on Madison Avenue, between 46th and 47th Streets, and it got its bailout. The biggest “MM”-style escapade of all? The new law lifts the federal debt ceiling to $10.6 trillion, a jump of $800 billion. We’re all Don Drapers now.

`Moral Hazard’

Bankers have their own term for legislation like the housing law. They say it expands “moral hazard,” widening incentives to do the wrong thing. The phrase has a starchy Victorian feel that makes us all recoil — too censorious and unmodern.

So maybe we should redub our behavior “MM” instead of “MH.” But it’s not the lexicon that matters, it’s the habit. The final word on the new law is that it guarantees the U.S. not one episode but rather several seasons of trouble.

Campaign `Hair Triggers’ Sink Aides at First Signs of Trouble

July 31 (Bloomberg) — Judy Rose was the first person sacked for violating the unwritten rules and tender sensibilities of the 2008 presidential race.

Democrat Hillary Clinton’s campaign ousted Rose in December as its volunteer chairwoman in Jones County, Iowa, after she forwarded to friends and relatives an e-mail containing false rumors that Barack Obama is a Muslim.

The small-town volunteer has been joined on the candidates’ casualty list by much bigger names deemed guilty of minor ethical transgressions and insensitive or careless remarks.

They include former Texas Senator Phil Gramm, Republican John McCain’s campaign co-chairman; ex-Texas Representative Tom Loeffler, McCain’s national finance co-chairman; lobbyist Doug Goodyear, manager of the Republican National Convention; former Fannie Mae Chairman James Johnson, who was helping Obama’s vice presidential selection process; and Harvard professor Samantha Power, a foreign policy adviser for Obama.

“The bar for a surrogate screwing up has gotten very low,” said Chris Lehane, who was Vice President Al Gore’s communications director.

Politicians are getting so sensitive they may have trouble finding anyone who measures up, said Allan Litchman, a political scientist at American University in Washington. “McCain and Obama may find themselves lighting a lamp like Diogenes and looking for honest, gaffe-free people,” he said.

Bloggers, Videos

Already, campaigns have discarded more prominent political supporters than during any election in memory. Real or perceived sins are being amplified by an unforgiving world teeming with round-the-clock bloggers and “citizen-journalists” wielding video cameras.

“There’s never been one like this,” said Ed Rollins, a veteran Republican strategist, who said firings in the past were reserved for truly serious offenses.

For example, President Bill Clinton’s top political adviser, Dick Morris, had to resign in 1996 after the Star supermarket tabloid reported that he’d conducted an affair with a call girl and let her listen to a telephone conversation with the president of the United States.

Now, campaigns have “hair triggers” when supporters draw potentially damaging attention, said Scott Reed, who managed Republican Bob Dole’s 1996 presidential bid.

Err on Safety

“Any issue can get away from a campaign overnight,” Reed said. “So there’s a tendency to err on the side of safety by cleaning out the stable, often at the expense of people’s careers and reputations.”

Campaign casualties began mounting on the approach to last winter’s Iowa caucuses and the New Hampshire primary.

In Rose’s case, the Iowa volunteer received the e-mail about Obama from an elementary school friend and forwarded it without comment to eight people, including six relatives.

Gary Hart, the Jones County Democratic chairman, blogged about the e-mail, calling it one of “the most hateful hit pieces” attacking Obama. Clinton’s campaign manager asked Rose to quit. She did.

“It was never my intent to slam Obama,” Rose told her hometown newspaper, the Anamosa Journal-Eureka. “I just wanted to say: `Hey, look what’s out here.”’

The experience “taught me how dirty politics can get,” she said. Rose didn’t respond to requests for an interview. Hart confirmed details of the incident and wouldn’t elaborate.

Damaging Interviews

Among the next to become persona non grata was Power, a Pulitzer Prize-winning professor. She resigned as a top Obama foreign policy adviser after calling Clinton “a monster” in an interview with the Scotsman newspaper of Edinburgh.

Another casualty was Geraldine Ferraro, the 1984 Democratic vice presidential candidate, who attributed Obama’s successes to his being black, in comments to the Torrance, California, Daily Breeze. Ferraro was banished from Clinton’s finance committee.

Gramm stepped down earlier this month after telling the Washington Times that the U.S. is a “nation of whiners” facing a “mental recession.”

The flap about Gramm, vice chairman of UBS Securities LLC, illustrates the risks of using prominent supporters, said Rollins, political director in Ronald Reagan’s White House.

“You expect surrogates to stay on talking points,” he said. “But high-profile people are used to giving their own opinions.”

Lobbyist Ban

In McCain’s campaign, at least five key aides departed amid questions about past lobbying work, in light of McCain’s image as a foe of “special interests.”

Goodyear’s work for Myanmar’s military dictatorship cost him his volunteer job running the Republican convention. Loeffler quit as McCain’s national finance co-chairman because his lobbying firm had represented Saudi Arabia.

Johnson quit Obama’s vice presidential search committee after the Wall Street Journal reported that he had received preferential mortgage rates from Countrywide Financial Corp.

The newspaper said one loan had an initial 6.375 percent rate when typical rates ranged from 6.2 percent to 6.5 percent. Another loan initially was set at 5.250 percent, compared with a going rate of about 6 percent to 6.2 percent, the Journal said. Johnson said he did nothing wrong, criticizing what he called “blatantly false statements and misrepresentations.”

Democratic strategist James Carville said campaigns are making much ado about very little, and losing valuable advisers in the process. “If you took everything that Samantha Power and Jim Johnson and Geraldine Ferraro did, and took it to the 10th power, it still doesn’t amount to nothing,” Carville said.

Greenspan Says Housing Prices Not Yet Near Bottom (Update1)

July 31 (Bloomberg) — Former Federal Reserve Chairman Alan Greenspan said falling U.S. home prices are “nowhere near the bottom” and the resulting market turmoil isn’t showing signs of abating.

While the odds of a recession are 50-50, achieving stable markets will “take a while,” Greenspan said today in a CNBC interview.

The economy grew at a 1.9 percent annualized rate in the second quarter after expanding 0.9 percent in the first quarter, the Commerce Department said in Washington. Gross domestic product was revised to show a contraction in the final three months of 2007.

More Americans filed claims for unemployment insurance last week than at any time in more than five years, the Labor Department said. Fed policy makers have cut the benchmark rate to 2 percent from 5.25 percent since September, halting the reductions in June amid rising concern about inflation.

Fannie Mae and Freddie Mac, the largest sources of money for U.S. home loans, are a “major accident waiting to happen,” Greenspan said. “The solution” is the “nationalization” of the companies, he said.

After the former Fed chairman spoke, Washington-based Fannie Mae dropped 69 cents, or 5.7 percent, to $11.52 at 3:48 in New York Stock Exchange composite trading. Freddie Mac fell 55 cents, or 6.3 percent, to $8.18.

“It important that we focus on stabilizing the financial system,” Greenspan said. Policy makers also need to reconcile slowing economic growth with rising prices, he said.

The U.S. faces “a very substantial change in the balance between growth and inflation,” Greenspan said.

U.S. Economy: Growth Rate Falls Short of Forecasts (Update1)

July 31 (Bloomberg) — The U.S. economy shrank at the end of 2007 and grew less than forecast in this year’s second quarter, signaling that the country is in worse shape than investors had anticipated.

“We’re in a recession,” Allen Sinai, chief economist at Decision Economics Inc. in New York, said in a Bloomberg Television interview. “It’s going to widen, it’s going to deepen.”

The economy may weaken further as the temporary boost from tax rebates, which aided a pick-up in gross domestic product last quarter from the previous three months, fades. Stocks dropped, Treasuries rallied and traders reduced bets that the Federal Reserve will raise interest rates this year.

“This confirms the general picture of weakness, but it is surprising that GDP declined,” said Martin Feldstein, who headed the National Bureau of Economic Research until June and serves on the group’s recession-dating panel. He added that today’s figures underscored his estimate that a downturn began in December or January. The last time the economy contracted was in 2001.

Gross domestic product increased at a 1.9 percent annualized rate, the Commerce Department said in Washington, compared with the median projection of 2.3 percent in a Bloomberg News survey. The Labor Department said separately that more Americans filed claims for unemployment insurance last week than at any time in more than five years.

Financial Markets

Yields on benchmark 10-year Treasuries dropped to 3.96 percent at 12:09 p.m. in New York, from 4.05 percent late yesterday. The Standard & Poor’s 500 Stock Index declined 0.7 percent to 1,275.75.

“As we look forward, we realize we have to grow out of a deeper hole than we thought,” said Jack Ablin, who helps manage $55 billion as chief investment officer at Harris Private Bank in Chicago. “We’re going to operate at a kind of lackluster growth rate for many quarters to come.”

The smallest trade deficit in seven years, helped by the weakening U.S. dollar, prevented the economy from shrinking again last quarter. The trade gap narrowed to a $395.2 billion annual pace, adding 2.4 percentage points to growth, the most since 1980. Excluding trade, the economy would have contracted at a 0.5 percent pace, the second such decline in the last three quarters.

Chicago Report

Exports may have also spurred a gain in the National Association of Purchasing Management-Chicago’s business activity index. The group said today its measure increased to 50.8 this month from 49.6 in June. Fifty is the dividing line between growth and contraction.

“Exports are making the difference between a near recession, or mild recession, and a deep recession,” Nariman Behravesh, chief economist at Global Insight Inc., a Lexington, Massachusetts, forecasting firm, said in an interview with Bloomberg Television. “We don’t really see a recovery until some time in the spring or summer” of 2009 for the economy, he said.

An adviser to Senator John McCain, the presumptive Republican candidate for president, said today’s report shows the importance of keeping open to trade.

“While growth continues to be disappointing, trade provides one of the few bright spots,” said McCain adviser Douglas Holtz- Eakin in a statement. That raises “questions about Barack Obama’s policy of economic isolationism,” he said.

Obama Campaign

Obama spokeswoman Linda Douglass said McCain “doesn’t have any solutions for people who are struggling in this economy.”

Initial claims for unemployment insurance jumped by 44,000 to 448,000, the Labor Department said today. The department tomorrow may say payrolls declined by 75,000 in July, bringing total job losses so far this year to over 500,000.

Annual benchmark revisions showed consumer spending slowed more than previously estimated and the housing slump worsened. The economy shrank 0.2 percent in the fourth quarter last year, compared with a previously reported 0.6 percent gain.

First-quarter figures were also revised down to show a 0.9 pace of growth compared with a prior estimate of 1 percent.

The median forecast of economists for the second quarter GDP figures was based on 79 estimates in a Bloomberg News survey. Today’s report is the first for the period and will be revised in August and September as more information becomes available.

Declines in growth in the revisions are reinforcing the recession signals sent by the loss of jobs so far this year. Still, a downturn is unlikely to be officially declared for months to come.

NBER Watchlist

The NBER, the Cambridge, Massachusetts-based arbiter of economic cycles, defines a recession as a “significant” decrease in activity over a sustained period of time. The declines would be visible in GDP, payrolls, production, sales and incomes. The NBER usually declares a recession six to 18 months after it begins.

George W. Bush would become the first president since Richard Nixon to have two recessions while in office, after the downturn from March to November of 2001.

The housing slump continued to hurt the economy, even as the decline moderated. Residential construction dropped at a 15.6 percent annual pace after dropping 25.1 percent in the first three months of the year. The decline detracted 0.6 percentage point from growth, the smallest reduction in more than two years.

Consumer spending last quarter grew at a 1.5 percent pace, less than anticipated, compared with a 0.9 percent gain in the January-to-March period that was the smallest in 13 years.

Retail Sales

Most economists are forecasting the lift from the rebates will fade in the second half of the year. Retail sales rose 0.1 percent in June, less than forecast, indicating consumers may already have started to retrench at the end of the quarter.

Shoppers are hunting for bargains to stretch the buying power of the stimulus checks. Wal-Mart Stores Inc., the largest retailer, said same-store sales in June rose 5.8 percent, the biggest increase in four years, as customers spent the rebate money on discounted gasoline and food.

“At times like now, when the average American is struggling with the cost of everyday needs, price matters,” Eduardo Castro- Wright, chief executive officer of Wal-Mart’s U.S. stores division, told shareholders last month.

The price index in today’s report rose at an annual rate of 1.1 percent, the smallest increase since 1998 and down from 2.6 percent in the first quarter.

Investors are betting the Fed will keep the benchmark rate unchanged at 2 percent at its Aug. 5 meeting, according to federal funds futures contracts. Odds of an increase by year-end fell to about 60 percent today from 69 percent yesterday, futures prices showed.

“It’s a tough time,” Kellogg Co. Chief Executive Officer David Mackay said today in an interview. Kellogg, the largest U.S. cereal maker, said it plans to increase prices on cookies, crackers and frozen foods for a second time this year to blunt higher costs for energy and ingredients.

Publicado por Ricardo Valenzuela en 1:18 PM 0 comentarios

U.S. Stocks Slide After Economic Growth Trails Forecasts

July 31 (Bloomberg) — U.S. stocks fell, capping a second monthly drop for the Standard & Poor’s 500 Index, after economic growth trailed forecasts, jobless claims rose to a five-year high and Exxon Mobil Corp.’s profit missed analysts’ estimates.

“The data put the market on notice that the economy is slowing,” said Quincy Krosby, who helps manage $380 billion as chief investment strategist at the Hartford in Hartford, Connecticut. “It’s not equity friendly.”

Caterpillar Inc., Boeing Co. and Walt Disney Co. led the retreat after the Commerce Department said the economy grew at a 1.9 percent rate last quarter and contracted at the end of 2007. Exxon Mobil fell, extending the worst monthly slump for S&P 500 energy companies since at least 1989, after declining production slowed earnings growth. Benchmark indexes extended their tumble late in the day after former Federal Reserve Chairman Alan Greenspan said the housing slump will worsen.

The S&P 500 slid 16.88 points, or 1.3 percent, to 1,267.38, leaving the benchmark index down 1 percent in July. The Dow Jones Industrial Average lost 205.67, or 1.8 percent, to 11,378.02. The Nasdaq Composite Index slipped 4.17, or 0.2 percent, to 2,325.55. Almost three stocks retreated for each that rose on the New York Stock Exchange.

Jobs Concern

The S&P 500 trimmed its rebound from an almost three-year low on July 15 to 4.3 percent. The 448,000 increase in jobless claims weighed on stocks as investors await tomorrow’s government report forecast to show the nation lost 75,000 jobs in July. Even though the majority of companies have beaten estimates, S&P 500 profit growth has slumped 17 percent on average from a year earlier, according to data compiled by Bloomberg.

The Dow ended the month with a 0.3 percent gain, while the Nasdaq posted a 1.4 percent increase.

Caterpillar, the largest maker of bulldozers, slumped 3.5 percent to $69.52 today. Boeing, the world’s second-biggest commercial airplane maker, lost 4.3 percent to $61.11.

Disney, the biggest theme-park operator, dropped $1.32, or 4.2 percent, to $30.35 even after posting a 9 percent gain in third-quarter profit and beating analysts’ estimates.

The Commerce Department report on gross domestic product showed the drag from the worst housing slump since the Great Depression and rising unemployment blunted the impact of federal tax rebates. Economists surveyed by Bloomberg had forecast growth of 2.3 percent in the second quarter.

The economy shrank 0.2 percent in the fourth quarter last year, compared with a previously reported 0.6 percent gain. The report also contained annual revisions that lowered the growth rate back to 2005.

“The markets don’t like it,” said Peter Boockvar, an equity strategist at Miller Tabak & Co. in New York. “You listen to a market of optimists who think the worst is over and that it’s gonna be OK, but this data is showing you it’s not.”

Exxon, MasterCard

Exxon slid $3.95, or 4.7 percent, to $80.43. Production tumbled 7.8 percent after assets were seized in Venezuela, Nigerian workers went on strike and record prices triggered contract clauses that give oil-rich governments a bigger share of output.

The S&P 500 Energy Index slumped 3.4 percent, extending its July retreat to 14 percent.

MasterCard Inc. dropped $29.36, or 11 percent, to $241.37. The world’s second-biggest credit-card company posted a $746.7 million loss on costs to settle an antitrust lawsuit with American Express Co.

Akamai Technologies Inc. fell the most in the S&P 500, losing $7.91, or 25 percent, to $23.34. The largest supplier of software to speed up Web services lowered its profit forecast.

U.S. stocks likely will keep falling until consumer and business loans are more readily available, Merrill Lynch & Co.’s chief investment strategist said.

`Pretty Hard’

“It’s going to be pretty hard for the stock market to bottom and form a bull market without credit conditions easing,” said Richard Bernstein in a Bloomberg Television interview. “Clearly credit issues aren’t easing just yet.”