The right reform for the FedBen Bernanke

bernake_bush_cox, originally uploaded by richepstein.

from left to right: Bernake, Bush, Paulson, Cox


For many Americans, the financial crisis, and the recession it spawned, have been devastating -- jobs, homes, savings lost. Understandably, many people are calling for change. Yet change needs to be about creating a system that works better, not just differently. As a nation, our challenge is to design a system of financial oversight that will embody the lessons of the past two years and provide a robust framework for preventing future crises and the economic damage they cause.

These matters are complex, and Congress is still in the midst of considering how best to reform financial regulation. I am concerned, however, that a number of the legislative proposals being circulated would significantly reduce the capacity of the Federal Reserve to perform its core functions. Notably, some leading proposals in the Senate would strip the Fed of all its bank regulatory powers. And a House committee recently voted to repeal a 1978 provision that was intended to protect monetary policy from short-term political influence. These measures are very much out of step with the global consensus on the appropriate role of central banks, and they would seriously impair the prospects for economic and financial stability in the United States. The Fed played a major part in arresting the crisis, and we should be seeking to preserve, not degrade, the institution's ability to foster financial stability and to promote economic recovery without inflation.

The proposed measures are at least in part the product of public anger over the financial crisis and the government's response, particularly the rescues of some individual financial firms. The government's actions to avoid financial collapse last fall -- as distasteful and unfair as some undoubtedly were -- were unfortunately necessary to prevent a global economic catastrophe that could have rivaled the Great Depression in length and severity, with profound consequences for our economy and society. (I know something about this, having spent my career prior to public service studying these issues.) My colleagues at the Federal Reserve and I were determined not to allow that to happen.

Moreover, looking to the future, we strongly support measures -- including the development of a special bankruptcy regime for financial firms whose disorderly failure would threaten the integrity of the financial system -- to ensure that ad hoc interventions of the type we were forced to use last fall never happen again. Adopting such a resolution regime, together with tougher oversight of large, complex financial firms, would make clear that no institution is "too big to fail" -- while ensuring that the costs of failure are borne by owners, managers, creditors and the financial services industry, not by taxpayers.

The Federal Reserve, like other regulators around the world, did not do all that it could have to constrain excessive risk-taking in the financial sector in the period leading up to the crisis. We have extensively reviewed our performance and moved aggressively to fix the problems.

Working with other agencies, we have toughened our rules and oversight. We will be requiring banks to hold more capital and liquidity and to structure compensation packages in ways that limit excessive risk-taking. We are taking more explicit account of risks to the financial system as a whole.

We are also supplementing bank examination staffs with teams of economists, financial market specialists and other experts. This combination of expertise, a unique strength of the Fed, helped bring credibility and clarity to the "stress tests" of the banking system conducted in the spring. These tests were led by the Fed and marked a turning point in public confidence in the banking system.

There is a strong case for a continued role for the Federal Reserve in bank supervision. Because of our role in making monetary policy, the Fed brings unparalleled economic and financial expertise to its oversight of banks, as demonstrated by the success of the stress tests.

This expertise is essential for supervising highly complex financial firms and for analyzing the interactions among key firms and markets. Our supervision is also informed by the grass-roots perspective derived from the Fed's unique regional structure and our experience in supervising community banks. At the same time, our ability to make effective monetary policy and to promote financial stability depends vitally on the information, expertise and authorities we gain as bank supervisors, as demonstrated in episodes such as the 1987 stock market crash and the financial disruptions of Sept. 11, 2001, as well as by the crisis of the past two years.

Of course, the ultimate goal of all our efforts is to restore and sustain economic prosperity. To support economic growth, the Fed has cut interest rates aggressively and provided further stimulus through lending and asset-purchase programs. Our ability to take such actions without engendering sharp increases in inflation depends heavily on our credibility and independence from short-term political pressures. Many studies have shown that countries whose central banks make monetary policy independently of such political influence have better economic performance, including lower inflation and interest rates.

Independent does not mean unaccountable. In its making of monetary policy, the Fed is highly transparent, providing detailed minutes of policy meetings and regular testimony before Congress, among other information. Our financial statements are public and audited by an outside accounting firm; we publish our balance sheet weekly; and we provide monthly reports with extensive information on all the temporary lending facilities developed during the crisis. Congress, through the Government Accountability Office, can and does audit all parts of our operations except for the monetary policy deliberations and actions covered by the 1978 exemption. The general repeal of that exemption would serve only to increase the perceived influence of Congress on monetary policy decisions, which would undermine the confidence the public and the markets have in the Fed to act in the long-term economic interest of the nation.

We have come a long way in our battle against the financial and economic crisis, but there is a long way to go. Now more than ever, America needs a strong, nonpolitical and independent central bank with the tools to promote financial stability and to help steer our economy to recovery without inflation.

The writer is chairman of the Federal Reserve Board of Governors.

The Mathias Rust of the Obama's Presidency

P112409SA-0823, originally uploaded by The White House.

President Barack Obama greets Michaele and Tareq Salahi during a receiving line in the Blue Room of the White House before the State Dinner with Prime Minister Manmohan Singh of India, Nov. 24, 2009. (Official White House Photo by Samantha Appleton)

I don't understand all the brouhaha about the two people who made it at the Obama's State Dinner with Prime Minister Manmohan Singh of India.

1. Abstracting oneself from all the noise, the resemblance between this episode and Mathias Rust is striking. Rust, a West German citizen, managed to land a small plane near the Red Square in Moscow, at the height of the Cold War. That was yet another sign for Gorbachev, USSR president at that time, that the Soviet system ran its course.
2. People have become so media needy and the paucity of making ends meet is so that one would even eat cockroaches to get on the screen for a brief.
3. Getting into the White House like this should be a public service, because it shows how ugly the system has become.
4. At this stage, the Obama administration has done better than what would be expected by publishing this photo. More to follow...
   
5. A large part of the American public forgot about Habeas Corpus and demands that the two be punished instead of sensing how far down we've come.
   

Here's a sample of OUR views:

SNA
Westfield NJ

At events like this one, the Secret Service has one function: to provide security for the President and those around him. The agency failed to do its job and those responsible need to be dismissed. The couple involved in this incident should be prosecuted within the limits of the law. End of story.

Jill Center
San Francisco

This truly is very serious. In addition to a full review of Secret Service procedures, there should be legal action taken against these two. They may be dealing in a self-serving world of promotion and reality-tv, but the rest of us are not. The real world needs to intrude, and set an example with the real law.


Rick Pierce
New York

While I agree there's a misplaced sense of security, I think the onus of responsibility is on the two individuals who made a mockery of the state dinner, not the USSS, whose front-line employees made a regrettable absence of judgement.

It's becoming increasingly clear that this couple intentionally tests the system for superficiality alone and flouts the common rules and norms of society. As CNN and the Post are reporting, they've been named in 16 civil suits alone; as more emerges, the picture is increasingly clear that they should answer for their actions. The Dept. of Justice would be well-served to open an investigation into their personal background, pending felony charges for their more recent incident. As the balloon boy case illustrated, deceit and misleading public officials should carry weight and should discourage others from following suit.

Interestingly, little has been made of Bravo's role. The network has yet to express disapproval or remorse; it'd be well within reason for the DoJ to investigate their relationship with the couple and make life difficult for their shameless oversight.


Crow
VT

I have to take off my shoes to get on a plane.
I have to show a photo ID to use a credit card at the super market.
But I can get into a state dinner at the White House?


John G
Miami, FL

There must be some law broken here and these two ought to be prosecuted to the fullest if a law was broken. They are no better than the balloon hoax family.

I do not understand why a criminal investigation has not been mentioned. Further, why these two are becoming celebs over this. Bravo should now decline to select her.


ajsajs
San Francisco Bay area

Shame on Larry King for having these people on his show. The self-serving windbag should withdraw the invitation, and the rest of the press should shun these two fame mongers. Otherwise, the press is just playing into their hands.

Entering a secret service security area under false pretenses is a crime and should be prosecuted. The criminality extends to the Bravo TV network, and that makes it conspiracy. Photographer and makeup artist? Send out the subpoenas.


emm305
SC

They need to be prosecuted for lying to the Secret Service. They need to be convicted. They need to be in jail.
If they have any honor, the Secret Service agents would resign.
Since I'm from SC, I realize that is a very rare quality these days.


Frank Leja
NY,NY

1. The Secret Service agents (and other security people) should be fired and/or court martialed depending upon who they worked for.
2. These people should be prosecuted to the fullest extent of the law.
3. If Bravo had any involvement the FCC should investigate them and at least fine them a truly significant sum of money.
This is a flat out breach of National Security.


MensaMan
Naples, FL

Frankly, we should all be grateful to this couple for showing us (and the secret service) how easy it all was. They might even send a bill for tutorial services rendered to the government. Remember when young hackers, many just kids, showed us a few years ago how EASY it was to get through highly regarded bank computer systems? (They actually performed an educational service!)
More craziness is (undoubtedly) on the way, and THAT is as it should be,... because we're a CRAZY society with distorted values about almost everything!!!
I'm relieved no one got hurt!


sparikh
outerbank, nj

This episode reflect our nation's overpaid over blown and hype security apparatus over confidence.


jim
new jersey

The pair were described as "aspiring reality-show celebrities." I take that to be a euphemism for vacuous enthusiasts of a mindless pop-culture fad designed to gull a television audience so lacking in any sense of self-worth as to identify with the dubious distinction of being the center of attraction in that "entertainment" genre.
Or maybe I am simply in an ill humor this morning.


Ryan
Florida

Obviously the Secret Service lacks a sense of style - Mr Salahi is wearing a ready-tied bow tie to a state dinner. Fie! That should certainly be a tip-off.


Aaron
Chicago, Illinois

To much of this "celebrity" stuff. Someone is going to get him/herself or someone else killed over this sort of nonsense. "Reality" television? This nonsense needs to go away...soon.
:-)


Aravinda
Maryland

I see the point of the hardliners (throw the book at 'em) as well as the softliners (pay them for tutorial services). Better learn the lesson from these silly people than from people with malicious intent. But what is the lesson? Not merely that one can crash the WH party - but just look what the rest of the people are doing at the party. Just seeing and being seen, like any other glamor crowd, not the select 300 from the world of journalism, politics, film.
Would it have made any difference even if they had been invited?


Vstarr1100
Utah

The actions of these two wannabe's is just one more example of how far off base the mindset of so many in the U.S. has strayed from true reality. The fact that they thought is was totally acceptable to crash a "State Dinner" honoring foreign dignitaries does not excuse their actions in any shape or form and they should be prosecuted to the full extent of any applicable laws. We have become a nation of narcissistic degenerates due to the rise of so called reality television and the producers of those shows like Bravo are just adding fuel to the fire by encouraging such actions.
Incidents like this one at the White House and the balloon boy incident in Colorado are just the tip of the ice berg in relation to how bad it may potentially get with regards to reality television. The only real effective way to stop this downward spiral of civility in the U.S. is for us, the citizens of this nation, to stop tuning in to these so called reality programs. By doing so we will be sending a resounding message to not only the producers of this type of programming but also to their sponsors who purchase advertising minutes with them that we are tired of the crap that is passing for television programming and will not tolerate nor support it any more.


Anthony
Manhattan

excuse me, this was not some "private" wedding or gathering with friends and family only, this event was on property paid for and owned by, we the people, of the U.S. All that food and entertainment and money for tent and other extravagances were all paid for by, US, the tax payers. There were hundreds of people at this event, any U.S. citizen should not have to be on any list, other than a list of tax payers. Hats off to this enlightened, courageous couple.


RHSchumann
Bonn

What a sick society we have become to give psychopaths like these people headlines. One should feel sorry for people to whom public exposure in their main if not only goal in life. Did they ever do anything productive? Where did they get the money to lead this kind of life? In the meantime the millions who slave to allow them a life in luxury remain anonymous. Only the utterly naive will believe that Bravo had nothing to do with it.
As far as the security scandal, this reminds me of the story of a man who somehow slipped into a room were a top secret conference took place. After he was discovered, they kept him in the room until they could grant him a top secret clearance. Once in the room, the White House could have added them to the guest list!


flynnLindley
Bellingham

Why is this pair not in jail. If they were anything but white, well-coiffed and clothed, they most certainly would be. This is absolutely unacceptable.


SKV
New York, NY

It gets more and more embarrassing to be American. What is WRONG with people? This couple, the balloon boy parents -- what absolute trash.

The above comments were selected also based on most readers' recommendations.

coporate America being 'just a hovering cloud that really doesn't reside anywhere

R. Law
Texas

A basic fact has arisen - our economy has a surplus of bankers which are being subsidized by the U.S. tax-payer. The spectacle begs for some creative destruction, as every investment banker and B-schooler knows. The situation has been exacerbated as traditional investment banking partnerships risking their own capital morphed into public entities run by sorry corporate by-laws, with no change in their business models, despite the warning signs of Milken, Boesky, et al. In terms they definitely understand, we are imposing overdraft fees and may very well raise the interest rate on their accounts retroactively as more and more chicanery is revealed.

This is all a predictable end to the cannibalistic LBO buy-outs which began in the late '70s and were subsequently fueled by massive 401-K inflows, leveraging poor corporate governance into greenmail, phantasmagoric corporate compensation, and un-wise liquidation of America's manufacturing base in pursuit of M & A deals to meet investment banking growth projections, with said liquidations and banking fees more often than not financed by raiding middle class pension safety nets. Capitalism began being systematically looted from the board-room and corporate jet.

If there were a surviving merged entity in one of these deals, it was often loaded with so much debt and had so much revenue stripped out that it descended into bankruptcy if there was the slightest economic hiccup or rise in the price of oil; e.g., Continental Airlines (twice) and the Sealy vs. Simmons contrast as detailed by the NYTimes:

http://dealbook...

Combined with tax advantages accorded hedge funds, off-shore investment banking vehicles, lack of having to deal with personnel to actually build an enterprise, and 'sitting duck' characteristic of PP&E, many traditional American firms were easy prey, making it even easier for bankers to raise funds from the uber-wealthy for yet more M & A, and the cycle perpetuated itself, juiced for good measure by donation-hungry politicians and reversal of New Deal regulations that had stood the country in good stead for 70 years.

A case in point would be the SEC permission secured by investment bankers in April of 2004 (election year) to lend out their capital 33 times over, something which any neighborhood 10 year-old running a sidewalk lemonade stand would know to be folly, and over 10 times the leverage of the corner community bank's 3-1 captial ratio.

That scenario is over. Many aspects of what happened to Bear Stearns and Lehman indicate the bankers in fact began preying on themselves, fitting neatly with Tom Friedman's 6 points in his 11/20 interview:

http://www.charlierose.com

most especially his point about corporate America being 'just a hovering cloud that really doesn't reside anywhere' - a point left out of Friedman's 11/22 essay.

Last fall, tax-payers gave these bankers a chance to do the right thing. The bankers have manifestly proven unable to restrain themselves, returning to 'situation normal' at warp speed, and doing zilch towards replacing the America they helped liquidate over the last 30 years, whose remnants everyone agrees must now be supported and re-built. Re-building is harder than liquidating, and harder than maintenance (which is why we rescued GM and Chrysler). The bankers with MBA's are the people who best know how to do that rebuilding and are best trained in managing large financial projects, but it seems they are insulated by the Federal treasury's subsidizing of their compensation from this reality, and further insulated by sorry corporate governance from being forced by their own share-holders to do what the country needs.

The point was recently made that Germany in the 1930's had first experienced a banking crisis, then began choosing more and more Populists in its elections, thus democratically transmogrifying itself due to mismanagement by the bankers.

Considering history, and in the interest of simple expediency, serious consideration must be given to whether Las Vegas is better-suited through existing Nevada Gaming Commission over-sight, better management practices, better risk control, less leverage, better discipline, and PROFIT LIMITS, to be trustee of our banking system and thus deserving of any further tax-payer funding.

...the US will look like Britain in 1946

John
St Paul Minnesota


The Vietnam War provided the capital for The Gulf states to buy out the Western Oil companies in the late sixties and early seventies. The US government didn't want to create shortages in the domestic economy by either rationing or allowing prices to rise, but instead used oil from the gulf for the Seventh Fleet. The US government didn't raise taxes or cut other spending to finance the war, the famous Guns AND Butter choice.
The result of that policy was an understanding that the Dollar was in for trouble. The French started cashing Dollars into gold at $ 35/ounce, and the Gulf States forced the Oil companies to sell their concessions to the host countries at an oil price of approximately $ 3/barrel. At the first opportunity, 1973 Yom Kippur War, they quadrupled the price of oil, the first oil shock.
At this point the pent up inflation from the Vietnam War kicked in with vengeance. We ended up with over 12% inflation and interest rates went to the moon.
They say history repeats itself the first time as tragedy, the second time as farce. The current wars started by the previous administration clearly count in the farce category. These wars have produced the capital drain to China that will.inevitably end the same way as the Vietnam War capital drain. There will be a massive inflation and the Federal Reserve will end up raising interest rates to keep foreigners in Dollars, and the American People will pay severely for these crazy policies.
In the end the US will look like Britain in 1946.

Free speech and its likes, from this side

DJG
Seattle, WA


I think it's mighty presumptuous of America to assume all Chinese care as much about unfettered freedom as we do. As a parent of 2 young children I for one wish our government would sensor many of the hate and pornographic websites.

On the one hand our media tells us there are over 10,000 mass protests in China each year, on the other hand they tell us Chinese are not free to protest their government. On the one hand we are told China censors the internet, on the other hand we always see plenty of Chinese posters on websites like the NYTimes, Economist, WSJ voicing their opinion. Which is it? And btw if any of them so much as dare to voice support for their government, they are immediately attacked by US posters as government stooges paid to post CCP propaganda on the internet, brainwashed by government censored media etc. As if all 1.3B Chinese are a bunch of automatons who can't think for themselves.

I wonder if it ever occured to many Americans that maybe they are the ones who are brainwashed by their media to think what these cold war relics want them to think about China? Just because our media is free does not mean they are unbiased. Especially in the case of China, there is plenty of bias to go around from our left leaning, self-righteous, arrogant media.

It's preposterous for America, a young country of 200+ years with a population of 300M to try to tell China, a country of 4,000 year history and a population of 1.3Billion, how to run their country. The height of arrogance especially considering where America is today -- we are a culturally, morally and economically bankrupt country. Yet we want to preach to the Chinese to be more like us? Word to our media and the self-righteous liberal left, the Chinese are not stupid. Infact, they are probably the people with the highest IQ on the planet.

Arrogance brought down the Roman empire, the British Empire, the Japanese empire, the Soviet Union after their attack of Afghanistan, and even the modern economic miracle that is Japan. It is now bringing down America with the 2 wars that we imprudently engaged ourselves in, the credit crisis is just the final nail on the coffin. America would do well to shut up and listen for a while instead of continuing to talk to hear ourselves talk.


Ellen
nyc

Since Obama is lecturing Chinese youth about freedom of twittering, let's not forget the cases of Elliot Madison and Michael Wallschlaeger, two New Yorkers who, as a result of their twittering about events at the G20 protest, had their Pittsburgh motel room raided by police on September 24th. On October 1st, Madison's home in Queens was raided by the FBI and the NYPD, who searched it continuously from 6am to 10pm, and seized a large amount of Madison's personal property, including a confidential list of the clients he serves as a social worker. He and his wife, Irene, are now under investigation, and Madison and Wallschlaeger are now facing an array of criminal charges, all because they tweeted publicly available information about police on the streets of Pittsburgh who were attacking protesters with nightsticks, dogs and acoustic weapons like those used to disperse crowds in Iraq and Afghanistan.


Phil Greene
Houston, Texas

China blocks nasty pictures on the internet, while the US does not, but instead monitors these sites with massive law enforcement to catch some poor sad sack if he downloads them and then throws him in jail. Chinas approach is more rational and leaves more people free. Who is the civil libertarian here?


Laura
Maryland

So what, really, is the difference between the Chinese government hand-picking and screening the town-hall participants and the fact that staged debates and presidential forums in the U.S. also are conducted in this manner? Why do we criticize what we participate in by our own free will? And why, really, is anyone surprised at the way the Chinese handled this?


A. H.
Vancouver, Canada

When I read the many comments lamenting the staged nature of Obama's Q&A session in Shanghai, and that the audience was made up of carefully selected party members, I couldn't help remembering the staged speeches and rallies George W. Bush attended throughout his presidency. Bush and Cheney's public appearances were typically filled with reliably loyal Republicans. The questions asked were softballs. Protesters, sometimes just those who were identifiably liberal, were often herded into designated 'protest zones' (surely a violation of the 1st Amendment right of assembly). Is this so different from what we see in China?


Lafayette
Paris

What is not indicated, unfortunately, in this news report, was the fact that Obama underlined Human Rights. In doing so, he was referring to all such rights and called them, importantly, Human Rights. Underscoring this right in China, a totalitarian state, was important and probably did not pass unobserved.

The right to adequate Health Care is considered a Human Right, since the Declaration of Human Rights by the UN in 1947. See Article 25 of that document. The US is signatory to that document. Its passage was one of Eleanor Roosevelt's proudest moments, who had championed the Declaration.

And where are we today? Still light-years away from instituting the principle in our own country. The British were not so doltish. They got started on their National Health System in 1948.

But, of course, we are not the Brits. No, no Public Option for us. That smacks of Socialized Medicine. Can't have that, can we.


And now the counterpoint, still from this side

chaxx
NY

I am a Chinese student who studied in US for many years. Let me explain to you on several points and let you understand better of the situation.

For the youth league member issue, firstly, you need to understand the member structure of this organization as well as the Young Pioneers group. By the end of elementary school (the sixth year) most students are enrolled in the young pioneers group but it doesn't mean these kids are all for political purpose. Students who studied hard and earned higher GPA are generally encouraged to become a member earlier. So is the youth league, when I was in my first year of middle school, only less than 10% students enrolled in the youth league and they are all elites in the class and by the time I graduate (12th grade) from high school, more than 80% students are youth league members. Being a youth league member doesn't mean you are all for some political ideology, it's just a system and if a student is enrolled, he feels proud in some way because his achievement academically and extracellularly are generally acknowledged and praised by his or her classmates and teachers. The youth league membership automatically expires when you reach a certain age (it's 25 if I remember correctly).
So it's quite normal that the majority of the students in the town hall meeting are Chinese youth league members. And it is a traditional custom in China that the hosts wants to show the best site of (their institution or home) to a guest, especially to a foreigner high profile guest. This is considered a courtesy to treat customers in Chinese culture. And when I was in college, whenever there are any foreign visitors coming to my department, our advisor asked the best students who can speak better English and have higher GPAs to accompany them, inevitably, these students are highly likely to be members or even leaders of the youth group or even the communist party since like all the other organizations, these organizations prefer to enroll the elites of the university into these organizations and it's quite normal that elite students want to join the party or be the leaders of the league, since in some way, this gives them better job prospects in the future.

While we treat you seriously in courtesy and bring our elite students dressing in fine suits to accompany your president. You interpret this as a way the party is manipulating and cheat your president? This is actually not the same time the west misunderstood China, every time China thinks it prepares well in any event and makes sure every detail went smoothly (eg, using a good-looking girl standing in front while having another girl with good voice sing as her in the Olympics), that's the effort, the hosts are trying to present their best side to the guests and to the world. And you interpret this as some malicious manipulation?

Please, you arrogant and ignorant people, learn to respect and understand people from other culture. People use the most traditional courtesy to treat each other on formal occasions in oriental countries, eg, people bow to each other in Japan as a way to show respect and courtesy and People in China tend to use their best resource and people in fine attire to host the guests.
Would you please not to interpret everything in your American way and regard anything not consistent with your thought as barbarian and authoritarian? SHOW SOME RESPECT AND UNDERSTANDING TO OTHER CULTURE!

Simply ask the Chinese students you ran into who had the education career in China (middle school to college) if he or she was ever a member of the pioneer or the youth group, I'm telling you the truth: the majority of them were! That's just the way people lead in China, don't be so rude as to interpret these members as giving a false showcase.
Americans, don't be so rude and arrogant, would you? Not everybody has the same lifestyle and culture as you!

Letter to a conservative columnist, David

Digoweli
NYCity

The problem is the pursuit of baubles. It began when America gave up on the intellectual and spiritual infrastructure of the Arts and culture for every person in America (1880s). From there it spread to education and then to healthcare and now is within the physical infrastructure. You have to have ideals and culture brings that. The carnival shill attitude of fundamentalism and conservative orthodoxy does nothing for the future except make it depressing. That includes your English conservatism as well. The English have been the consumers of Europe, giving up great music and art to the Italians, French and Germans and turning the nation into collectors. Here that English idea has turned viral and toxic on Wall Street. Property isn't the meaning of life David. Growth and an evolving competency and consciousness is. Digoweli

a test of brains, vision, and national " maturity"

Jlevine
Northampton Mass and Quebec


Now, we have come close to the real test. In face of a declining public education standard and product, with fewer people conversant with history, with empty and markedly ignorant rhetoric flourishing, we will find out if have simply become too stupid for the demands of the 21st Century. Tea Party marches, railings against government by people still lining up for Medicare, Social Security, and vitriol quite close to justification of future violence portends something quite frightening.

Nations will prosper only if they are smart enough to understand the complexities of monetary policy, the frailty of economic models, the tensions between modernity and the romanticized past, and the emergence of both the developing world and the decline of a Euro-centric globe. It is a test of brains, vision, and national " maturity". After reading the simplistic and grievously shallow pronouncements of the new Republican Right, I can only say....we may not, as a nation, be up to the tasks. What has failed is the ability to root the body politic in education, to value merit and expertise, and to encourage a style of discourse that predicts for a prospering nation.

On Afghanistan

Phil in the mountains of Kyushu
Japan

Yes as to the uncertainty all around on staying fighting in Afghanistan.

Please consider, however, one certainty: that the machinery of Corporate America relentlessly moves on – that it inspired the original 9-11 attacks, and that it yet rules in all its madness, leaving all helpless to it as to the wars it also causes.

To see the real dynamics, of which we may be certain, look back to last week when on same day this online NYT posted an odd pair of stories. One described the large numbers of Pakistani youth who now take their rock music in their rapping, angry versions more favorable to the Taliban than to anything in the West. The other chronicled a 100-million-dollar boon for himself in Kurdistan by one Peter Galbraith. As a former ambassador, member of the Senate Foreign Relations Committee, and writer for the “New York Review of Books,” Galbraith had all the cred he needed to help in reconstructing Kurdistan – but he also parlayed that into his own sweet carpetbagger $100m.

What can we say about American culture now, when corporate “ethics” so rule that one as otherwise decent as Galbraith shows the same underside we all know across Wall St. , D.C. lobbyists, CEOs, infotainment media, arms dealers, higher ed admin, and the Ivy cordon insulating Barack?

The world can see through Corporate America. Afghan and Pakistani youth can see through it. Palestinians can. All global versions of the Iroquois, Cherokee, and Sioux can see what’s happening to them now in their turn, too.

How to change it? First let’s admit that the rot isn’t just from the rabid right – Galbraith is not that, nor Obama, Daschle, Corzine or any number of others in and out of public service from the lefty side. Then let’s admit how well-educated souls also sing to the numeracy tune running the U.S. and the world. This isn’t news. Halberstam told the story in “The Best and the Brightest.” But maybe now things have gotten so bad – so rutted in idiotic wars, too, as you note today – that some will figure yes, we need change – huge change – at the source of corporate imagination. Never mind its genteel gilding: we need to change corporate academe. And we have one federal program, the Fulbright, as first lever to touch all the others.

P.B., Proprietor, www.EssayingDifferences.com


David K. McClurkin
Beachwood, Ohio

It is not the corruptness of the Karzai regime that invalidates our military presence in Afghanistan; it is the fundamental flaw in our reading of history and the present realities of the region. Voices now being heard make it plain that our military role in the region should not be increased or even continued. Centuries of tribal domination in Afghanistan have thwarted any nation that has attempted to control or even have a significant influence there. The United States and others may have the reach, but none have the grasp needed to shape Afghanistan into something it can never be – a cohesive nation capable of governing its millions of people.

We need to quit fantasizing about Afghanistan and make nation-building at home our first priority. Whatever our “interests” are there cannot nearly measure up to what our needs right here at home are.

views

The most underutilized tool for understanding the financial system is psychoanalysis.

The financial institutions’ most profitable talent is avoiding traumatic confrontation with the Self. We should never doubt that the prominent individuals in these institutions actually have no mental access to their essential harmfulness.

Accepting this postulate we must focus our efforts on hastening the confrontation. That’s jargon. What I really mean is that we need to understand how the financial industry hears our criticisms, and adjust our criticisms accordingly.

To the sane, objective observer, the crisis-followed-by-bailout was the final, irrefutable moment of truth: the financial industry’s wealth-creation is largely illusory. They make money not so much by increasing the efficiency of the system, but by directly increasing its instability. Because they create the instability, they have privileged knowledge of where it is and how to shield themselves from it. The crisis was the moment when their manufacture of instability became so overwhelming that it backfired, and in doing so, became visible and irrefutable.

The financial professionals saw a different picture. They saw the bailout not as evidence of their deep culpability for the corroded system, but simply of their importance to everyone’s well-being.

This culpability-and-denial-thereof is the essence of our objection. That is why I find Johnson to be one of the better commentators–he focuses on the hard reality of the financial industry’s active, blind culpability.

But when we, the peanut gallery, focus on their salaries, (which are certainly unjust, close to the heart of the problem and have unconscionable negative externalities) the bankers hear only:

“We, the weak, resent you, the strong, on whom we depend!”

As unfortunate as it is, we must speak to them in their language. Just as one must talk to sociopathic patients in their language.
— Matt



The average American family gains a $10,000 purchase premium a year to inexpensive Chinese products ie. Walmart, Target, Costco and Home Depot. If you buy a $4000 flatscreen, that would otherwise be $6000 plus if it was made domestically without the China price.

The dollar has lost 50% of its value in the past 3 years against the Euro and numerous European and world currencies EXCEPT the Chinese yuan.

The customer is not feeling this impact because of two reasons: the yuan is artificially pegged to the dollar and the Chinese economy is effectively our largest supplier of consumer goods. We just DON’T buy that much from France, Argentina or Latvia.

When the Yuan is unlinked from the Dollar, you will see flat screen tvs, computers, cellpphones double in prices. And the consumer will react like getting a sucker gut punch and become increasingly frustrated then angry.

This is a golden age for consumers….but not for much longer. Lean, less materialistic times are coming.
For JOB PROTECTIONIST: BE CAREFUL WHAT YOU WISH FOR. You may just get it. And that flat screen tv is now $8,000.
— Drill-Baby-Drill Drill Team

It's time we left?!

P111109PS-0687, originally uploaded by The White House.

President Barack Obama meets with his national security team to discuss Afghanistan in the Situation Room of the White House on Nov. 11, 2009.
(Official White House Photo by Pete Souza)

A compiled historic account of the last +60 years

The Suicide of the East?

1989 and the Fall of Communism
November/December 2009
Philip D. Zelikow
PHILIP D. ZELIKOW is Professor of History at the University of Virginia and a co-author, with Condoleezza Rice, of Germany Unified and Europe Transformed: A Study in Statecraft. Then a career diplomat, he served on the National Security Council staff for President George H. W. Bush in 1989-91.

There was no World War III. A fictional one, depicted in the 1978 international bestseller The Third World War, was imagined by one of the most remarkable soldier-scholars of his generation, a retired British general named John Hackett. His war begins when a 1985 crackup in Yugoslavia lights the great-power fuse, 1914 style. Analogies to World War I, of decaying empires and military machines primed to attack, were very much in the air when the book was published. It was the late 1970s, and Soviet interventionism had reached a high point, while the Soviet Union combined a sprawling, ill-governed military with an aging, insecure political class.

But by the time the real Yugoslav war did come, in 1991, another kind of chain reaction had already transformed Europe. In the late 1980s, Moscow was experimenting vigorously with economic and then political reform. The Soviet Union and Poland held limited elections in early 1989 that, in different ways, shook the foundations of their communist establishments. Soon, Poland had a noncommunist government. Hungary effectively defected to the West, attracting a flow of refugees from East Germany, thus undermining the bastion of Stalinism they left behind. The cascade quickened. Czechoslovakia's government was toppled by a "velvet revolution," and the Berlin Wall was breached when a bureaucratic snafu inadvertently opened the floodgates. Bulgarians overthrew their leaders, and as the year ended, Romania's brutal dictator died before a firing squad. As the Germans created a new unity for their divided nation, national movements splintered the Soviet Union itself. By the end of 1991, the Soviet empire had disintegrated.

Although there had been some bloodshed in China and Romania, there had been no great war. Hundreds of millions of people now led new ways of life in new states with new borders. The world was rearranged as in a great postwar settlement -- but without a war. So profound were the changes that when Yugoslavia started to break apart and the outside actors -- conditioned by habit to play leading roles in the drama -- stumbled onto the stage, the players seemed bewildered and scriptless.

Seen two decades later, it seems like a blur. As this episode passes into historical memory, 1989 has become the totemic year when the people rose up, and the November collapse of the Berlin Wall is its exemplary moment. A fresh crop of books now attempts to unpack this epic story. Was it really a revolt from below, or was it more from above, a civil war within the Communist elite? Both is the obvious answer, but these books put more weight on the struggles within the Communist elite. Some focus on the revolutions of 1989. Others emphasize the settlements that shaped the world of today. Two of them take in the full narrative arc of the communist experiment in organizing modern society. Hardly any discuss the challenge of fashioning a tempting alternative to it. That is unfortunate, because so many of communism's initial adherents were men and women disillusioned by the apparent failings of liberalism.

SEEING RED

Once upon a time, the "ten days that shook the world," in Russia's 1917 revolution, had a comparable grip on the public's historical imagination. Once upon a time, the future of the world seemed to belong to the states descended from that older bolt of revolutionary lightning.

These were total states. They encompassed the unprecedented forces of creation and destruction that humanity had so recently discovered, and they were driven by Nietzschean supermen with a will to power. Or so it seemed to the disillusioned Trotskyite James Burnham by the end of the 1930s. In his influential 1941 book, The Managerial Revolution, Burnham argued that ideologies such as socialism or fascism were just masks worn by new kinds of "managerial states," their resources mobilized and industries led by a technocratic elite. The states that would triumph were those that could carry their principles to their logical limits and use power ruthlessly. Capitalism, he predicted, was "not going to continue much longer." Shortly after World War II, Burnham returned to his theme of governing power elites, "the Machiavellians," who might adopt democratic forms to perpetuate their rule. If U.S. leaders hoped to survive, they would have to acquire their own will to power and use their fleeting nuclear advantage, in a preventive war if necessary.

Especially in light of Burnham's former prominence on the American left, his arguments intrigued George Orwell, a self-described "democratic socialist." Writing from the United Kingdom, Orwell noticed the fascination with power and force that so imbued what Burnham called his "realism." In early 1947, Orwell wrote that for Burnham, "Communism may be wicked, but at any rate it is big: it is a terrible, all-devouring monster which one fights against but which one cannot help admiring." Against Burnham's visions of monsters and cataclysms, Orwell hoped that "the Russian regime may become more liberal and less dangerous a generation hence, if war has not broken out in the meantime." Or perhaps the great powers would "be simply too frightened of the effects of atomic weapons ever to make use of them." Yet Orwell acknowledged that such a nuclear standoff was a dreadful prospect, as it would mean the lasting "division of the world among two or three vast super-states," run by Burnham's technocratic dictators -- the Machiavellian managerial elite.

For Orwell, the only way of avoiding that outcome was "to present somewhere or other, on a large scale, the spectacle of a community where people are relatively free and happy and where the main motive in life is not the pursuit of money or power. In other words, democratic Socialism must be made to work throughout some large area." He thought that this would have to be in Europe, a Europe unified to serve this ideal. So for Orwell in 1947, the prescription was to avoid war long enough for communist governments to become less dangerous and, meanwhile, to build an appealing alternative to communism.

Not a bad throw at the dartboard for the man who was about to write a novel, 1984, warning of a Burnhamite dystopia. If Orwell had lived to witness the real 1984, he would have been relieved to see that global war had been avoided. There had been a few serious scares and several regional wars, helped along by the triumph of an especially radical set of Communist enthusiasts in China. But by the early 1980s, their revolutionary dynamism spent, the Communist rulers had turned into a paternalistic managerial elite.

CAPITALISM IN CRISIS

David Priestland's The Red Flag is a far-reaching, vividly written account of that evolution, both the best and the most accessible one-volume history of communism now available. Priestland charts the rise of "romantic" Marxism, which once in power morphed into either a "modernist" or a "radical" variant. The first espoused an authoritarian high modernism to reshape society according to the visionary master plans of the guiding party. The second added the killing fervor of continuing revolution, with its militarized mobilization of every element of society and unceasing struggle against the revolution's enemies. By the early 1980s, the somewhat more benign modernist variant was dominant.

But the other half of Orwell's prescription is the relative success of the other side, a factor easily neglected in books that concentrate on communism's failings. Wars are not just lost; they have to be won. Traditional accounts of the Cold War understandably focus on the United States and the Soviet Union. But that contest was a kind of global election, and the swing states were in Europe and East Asia. From this perspective, the turning point of the late Cold War is less a story about 1989 and more a story about the period between 1978 and 1982.

In the late 1970s and early 1980s, capitalism was in obvious crisis. "Can Capitalism Survive?" cried a Time magazine cover from 1975. "Is Capitalism Working?" asked another in 1980. Yet divided after Mao's death among competing visions of national development, the Chinese made a pivotal choice in 1978. They rejected the Soviet model, opting instead for market-oriented economic reform, but without political reform. (At about the same time, Hungary's Communist leader, János Kádár, with his similar market-opening program of "goulash communism," showed how such a model could work in Eastern Europe, too.)

The Chinese were probably influenced less by the example of the United States itself than by U.S.-backed examples closer to home, such as Japan, South Korea, and -- although they would not admit it -- Taiwan. Not only had Moscow lost its power of attraction, but its political-military posture -- not least its backing of the increasingly powerful government in Vietnam -- also unsettled the Chinese.

In Europe, the model of social democracy achieved much in the late 1940s and 1950s. Its ideal of a big welfare state umpiring among big companies and big unions was at the core of the new European community. But by the 1970s, that model was sputtering on both sides of the Atlantic. The Bretton Woods system, which put national economic autonomy ahead of the free movement of global capital, had collapsed. Galloping inflation was combined with high unemployment, labor strife seemed endemic, protests and terrorism wracked much of Western Europe.

But capitalism broke out of its slump during the 1970s and into the early 1980s. At different moments, leaders in various states threw their weight behind a liberal economic orthodoxy of hard money and the unregulated movement of capital, limiting national economic autonomy but facilitating unprecedented flows of global investment. The globalized economy of today was shaped during these years, and the Americans played an important part. With his work to liberalize capital markets and coordinate monetary strategies, George Shultz may actually have influenced the course of world history more in his two years as treasury secretary for Richard Nixon than he did in his six-plus years as secretary of state for Ronald Reagan.

The Europeans also played a critical role in this reinvention of capitalism, while winning voters who wanted public order restored. West Germany became an anchor for this new vision of the world economy, especially the Free Democratic Party, which was the indispensable coalition partner of every West German government from the 1970s to the 1990s. The West Germans, in turn, found common cause with the French technocrats who saw in this shared vision of Europe's political economy the basis, first, for a European monetary system, then, for a true European single market, and, finally, for a common currency.

The story can be mapped as a tale of two U-turns: In 1972, there was the U-turn of a conservative British prime minister, Sir Edward Heath, who was broken by the unions and then scorned for it by his successor as party leader, Margaret ("the lady's not for turning") Thatcher. The other U-turn was in 1982-83, when French President François Mitterrand -- the first Socialist to take office in France since World War II -- abandoned his agenda of state-owned finance and industry to make common cause with Jacques Delors (his economics minister and later the president of the European Commission) and the West Germans. European integration had trumped the independent socialist path.

This rebooting of capitalism and reinvigoration of the European idea came at a critical time. The left was contesting the future not only of France but also of Italy and Spain. In West Germany, the Free Democrats brought down the Social Democratic government of Helmut Schmidt and made Helmut Kohl chancellor rather than compromise their preferred vision for Europe's political economy. Thatcher, elected in the United Kingdom in 1979, survived thanks in part to the tonic of a victorious small war against an Argentine dictatorship that had recklessly occupied some sparsely inhabited British-owned rocks in the South Atlantic. By the end of 1982, the swing states of Europe were making their choices.

THE ALTERNATIVE APPEAL

The rebooting was about ideas, too. Again, Europe was a fulcrum. Self-described "realists" on both the right and the left wanted to stay clear of alignment with either Washington or Moscow. But many others, including Schmidt, Kohl, and Mitterrand, disagreed. Reagan's condemnation of the Soviet Union as an "evil empire" was a rallying point for both those he inspired and those he frightened. The European contest was decided less by outsiders than by the Europeans' own battle of ideas, with the victory of what Germans called the Tendenzwende (change of course), which revived a spirit of "militant democracy" amid the turmoil of the 1970s. Leaders of this movement spoke, as the historian Jeffrey Herf once put it, "in the language of [Konrad] Adenauer and Clausewitz, but also in an international discourse of [Alexis de] Tocqueville and Karl Popper, Raymond Aron and Leszek Kolakowski, Montesquieu and President Jimmy Carter." A colossal political fight over NATO's deployment of U.S. nuclear missiles to offset new Soviet deployments, an initiative pioneered by Schmidt, became the central battle. The issue was effectively decided in West Germany, with the formation of a conservative-liberal governing coalition in 1982.

Most of the writers chronicling the demise of communism give short shrift to these crucial developments in Western Europe, and especially in West Germany. The outstanding exception is a perceptive essay by James Sheehan in The Fall of the Berlin Wall, a collection edited by Jeffrey Engel that compiles several national perspectives on these events. Sheehan's subject is less how Europe changed in 1989 and more "how the transformation of Europe after 1945 affected the timing and character of the Cold War's end." Sheehan thus stresses the way war became discredited in European politics and how European politicians subsequently constructed an appealing new European vision for functional modern societies. He shows how these successes created magnetic forces that, standing adjacent to the Soviet empire in Europe, slowly and surely pulled apart the decaying assumptions underlying communist rule. The European ideal of democracy and pluralism became a kind of lodestar for Mikhail Gorbachev himself -- as it did for Italian and Spanish Communists and Socialists.

Against this background, contrast two landmark choices of the communist world in 1979 and 1980. At the end of 1979, the Soviet Union invaded Afghanistan. Its reason -- that Afghanistan might fall under the influence of Chinese or Western rivals -- was nominally defensive, but even this rationale revealed a monumental insecurity. Although their political purposes were also defensive, Soviet forces were configured to invade Western Europe, molded by a military-industrial complex that had first claim on resources and operated with little constraint. (The political weight and consequences of this complex are neglected in most of these books, save some discussion by Archie Brown in The Rise and Fall of Communism. But interested readers will find it handled well in William Odom's 1998 work, The Collapse of the Soviet Military.)

And at the end of 1980, the Polish government declared martial law and imprisoned leaders of a movement, Solidarity, that had been inspired by a workers' union and a Polish pope. Constantine Pleshakov's There Is No Freedom Without Bread! puts the Polish story at the center of his account. Pleshakov, a Russian émigré now teaching at Mount Holyoke College, writes with great verve. He concentrates on major characters, such as Pope John Paul II, and tries to recover the way they saw their world. Pleshakov gives his characters human scale and fallibility, explaining, for instance, the strange Marian mysticism that was so important to Pope John Paul II and many other Polish Catholics. He has a keen eye for the factional contests among Communist barons, Catholic prelates, and Solidarity intellectuals. His is a story of the intellectual bankruptcy of the elite, out of fresh ideas even before it ran out of money. This was the impoverishment that the West German Free Democratic leader Hans-Dietrich Genscher grasped when he told a party gathering in 1981 that "like the U.S.A., we are a part of the West. One must say to those whose talk arouses another impression: American troops are in West Germany in order that free trade unions exist, and Soviet troops are in Poland to see to it that free trade unions there do not exist. That is the difference."

The choices of all the communist governments in Europe were made under the shadow of financial debt -- its scale a carefully guarded secret. In the 1970s, the Communist managers started borrowing the hard currency they needed to buy the goods that kept their populations happy. By the 1980s, these governments faced some hard choices. Other less developed countries were entering a series of debt crises that accompanied global capitalism's deflationary transition to hard money. Instead of curbing their debt, the communist countries borrowed even more. They found creditors, mainly in Western Europe, willing to extend new loans.

One of the great strengths of Stephen Kotkin's contribution to this group of books, Uncivil Society, is his emphasis on issues of political economy. Kotkin (with help from Jan Gross) shares with Pleshakov the view that the real story of 1989 is less one of a bottom-up revolution than one of a fatal split within the ruling elite, the "uncivil society" of his title. Gorbachev opened the mismanagement up to public inspection. "What Gorbachev did," Kotkin writes, "was to lay bare how socialism in the bloc had been crushed by competition with capitalism and by loans that could be repaid only by ever-new loans, Ponzi-scheme style."

By the mid-1980s, socialism had clearly lost its appeal in both Asia and Europe as an ideology for the future. But there were still many possibilities for how communist governments might evolve, some of them quite violent. Dissent was being managed. China and Hungary were both developing creative ways to use the market. Martial law in Poland had effectively contained the opposition. Then came Gorbachev.

GORBACHEV'S NEW THINKING

Archie Brown, one of the greatest living Kremlinologists and the author of The Rise and Fall of Communism, was paying attention to Gorbachev long before ordinary people had heard of him. Gorbachev was a model young Communist, carefully prepared for high office. He had been handpicked for the leadership by Yuri Andropov, then the head of the KGB. Andropov liked creative moves such as those by Kádár in Hungary, but he was also, as Brown writes, "an implacable opponent of overt dissent and of any development in the direction of political pluralism." Andropov had led the way in the choice to invade Afghanistan. Looking to Gorbachev, he wanted a first-rate modernizing Marxist to sustain the momentum against Politburo colleagues so senescent that, nostalgic for Stalin, they were still complaining about Nikita Khruschev even in the 1980s.

Some historians are brilliant interpreters who offer provocative new syntheses of the record. Others, perhaps not so flashy, build up the bedrock of knowledge with thorough, careful scholarship. If Priestland, with his book, is an example of the first category, Brown illustrates the second one. (Fortunately, the profession has room for both.) Brown has carefully assembled his facts when he importantly observes, of the 1985 selection of Gorbachev to lead the Soviet Union:

The views of every member of the Politburo at the time of [Konstantin] Chernenko's death are known. It is, accordingly, safe to say that if anyone from their ranks other than Gorbachev had been chosen as general secretary, the Soviet Union would have neither liberalized nor democratized. . . . If Andropov had enjoyed better health, minor reform, stopping far short of what occurred under Gorbachev, might well have proceeded. If Chernenko had lived longer, nothing much would have changed while he was general secretary.

The Soviet empire did not end up crumbling from the outside in. It changed from the inside out, starting at the top. Gorbachev's initial reforms failed and even made matters worse, exposing problems and causing panicked hoarding as goods disappeared from shelves. Especially in 1987 and 1988, Gorbachev redoubled reform instead of backing away. What is more, instead of following the Chinese and Hungarian model of trying economic reform without democratization, he went for some political reform, too. The decision to seek legitimizing elections came simultaneously in the Soviet Union and in Poland. It was a deeply un-Marxist initiative. Marx and Engels had never had much use for democratic processes. Historical materialism was a doctrine of science, not political marketing.

THE SOVIET CENTRIFUGE

The words "Soviet" and "union" are worth a moment's reflection. They were extremely meaningful, and they were originally devised to replace two other words: "Russian" and "empire." If the republics were no longer bound together by their supposed Marxist-Leninist ideological fraternity, what would happen to a "Soviet Union"?

As the Soviet Union entered 1989, Gorbachev was increasingly preoccupied with domestic dilemmas. Separatism had already become a major internal challenge, including from the Russian republic and its new leader, Boris Yeltsin. Priestland covers this in the style of a landscape artist; Brown handles it in fine detail; Pleshakov paints a series of impressionistic portraits.

Beset at home, Gorbachev needed peace and support from the United States. Reagan provided it. As Melvyn Leffler argues in a recent book, For the Soul of Mankind, the conciliatory Reagan made a major contribution to ending the Cold War. So did Reagan's successor, George H. W. Bush, after he and his advisers took several months to judge whether Gorbachev was still Andropov's protégé or really was qualitatively different. (Some of Gorbachev's own advisers, especially on the military side, were struggling with the same question. They did not become convinced that he was different, which for them meant becoming disillusioned with him, until 1990.)

By August 1989, communism was mutating. Along with the Soviet Union, Poland and Hungary led the way in Europe. Poland installed a non-Communist prime minister, and Hungary's leaders, already reform-minded, shrugged their shoulders and readily tacked to pick up the westerly winds.

China, however, chose quite a different path: it crushed political reform. Then, in 1992, its leaders devised a strategy to offset political oppression with a redoubled commitment to economic reform. Chen Jian has a superb and up-to-date summary of these choices in his contribution to Engel's The Fall of the Berlin Wall. Some Eastern European leaders were attracted to a "Chinese solution" of dealing firmly with dissent. But such a strategy would have done little to reaffirm communism's vitality.

The revolutions of 1989 cascaded into East Germany, Czechoslovakia, Bulgaria, and -- bloodily -- Stalinist Romania. It is a stirring story. Anyone wanting to recapture the passion and tumult of that year will enjoy Victor Sebestyen's journalistic narrative, Revolution 1989. Sebestyen, a Hungarian émigré living in the United Kingdom, has done an excellent job. He has touched all the bases, knows the terrain, and has skillfully woven in material from interviews and primary sources. Another journalistic account is Michael Meyer's The Year That Changed the World, in which Meyer revisits his work for Newsweek in 1989 and provides some eyewitness snapshots. Meyer is concerned with knocking down the notion that the Cold War was just won by Reagan, but today this is something of a straw man. A more substantive contribution from Meyer is the significance he gives to the discussions between Hungary and West Germany that set in motion the events leading to the fall of the Berlin Wall. His evidence strengthens the case that Kohl was trying to shape events, not just reacting to them.

In starting the chain reaction that brought down the Berlin Wall and led to Germany's unification, Hungary was more important than Poland. In August and September 1989, the internal upheavals of the communist world uncorked the long-bottled German question and, with it, much wider questions about the future of Europe. As the Cold War began to unwind, a whole new set of issues arose about the character of a postwar settlement. This is the point at which the coverage of the "1989 books" by Pleshakov, Kotkin, Sebestyen, and Meyer falls off.

AFTER THE FALL

Although they start earlier, Mary Elise Sarotte's 1989 and Frédéric Bozo's Mitterrand, the End of the Cold War, and German Unification are really "1990 books." They are mainly about the settlement that shaped the new Europe. When historical scholarship works as it should, historians build on prior work to extend and improve it. That is what Sarotte and Bozo have done.

Sarotte's book is compact and highly interpretive. Yet Sarotte has thoroughly mastered the original source material in all the key countries. She distills it with great skill, constantly enlivening her account with a sensibility for what these changes meant in life and culture. Hers is now the best one-volume work on Germany's unification available. It contains the clearest understanding to date of the extraordinary juggling performance of Kohl. After describing several possible models for a postwar settlement, Sarotte documents the triumph of what she calls the "prefab" approach, which extended the proven institutions of German democracy, European integration, and the security umbrella provided by NATO and the United States. Perhaps the book's only weakness -- shared with all the books under review -- is a lack of attention to the military settlement codified in the Treaty on Conventional Armed Forces in Europe (CFE), which addressed the unglamorous but vital balance of armies and air forces across the continent. Military imbalances had been the most costly and potentially destabilizing aspect of Europe's security environment for the previous 40 years -- and the 400 years before that.

Bozo's more detailed book seeks to reappraise Mitterrand's achievement, especially in coupling German unification with greater European integration -- a monetary union and a political union, which later produced the European Union. But Bozo is too modest when he claims to concentrate on Mitterrand's role. He provides a general account of the diplomacy of German unification that, although it stresses the French perspective, is informed by sources in other countries, too. Paris was close to the action, but on most issues not at the very center. Thus, telling the story primarily from the French perspective provides a more detached yet highly informed account of the diplomacy.

In some ways, Mitterrand's vision for Europe was the closest to Gorbachev's own notion of a "common European home." But, Bozo writes, "instead of a rebalancing that favored a Western Europe called to become a strategic actor itself, there followed an unexpected reaffirmation of the established Atlantic order. . . . It was in the pan-European dimension that the balance sheet of French policy was most unfavorable in 1991." Yet Bozo also notes that now, 20 years later, the United States, preoccupied with other global concerns, is retreating more from Europe, putting questions about European leadership into the foreground once again.

Sarotte and Bozo both give good marks to U.S. diplomacy in late 1989 and 1990. Sarotte, in particular, does a good job of judging old disputes about how to assign credit and blame at some critical moments. She also clarifies how both money and NATO reform were building blocks in getting to a final agreement.

Sarotte qualifies her praise by wondering, quoting former British Foreign Secretary Douglas Hurd, whether the Americans, had they been geniuses on the order of Franklin Roosevelt and Winston Churchill, could have said, "The whole game is coming into our hands," and updated all the institutions, including the United Nations. As a former diplomat who served in the George H. W. Bush administration, I am biased. But consider the architecture that was being put in place by the end of 1990: a unified Germany, a transformed EU, the most significant arms control arrangement (the CFE) in European military history, a preserved and extended Atlantic alliance, a revitalized UN that mobilized a coalition to reverse Iraq's conquest of Kuwait, a Euro-Atlantic agreement on principles of political and economic life (the Paris agreement of the Conference on Security and Cooperation in Europe), the Brady Plan to clean up international debt crises, a revived global trade round that would produce the World Trade Organization, and a new framework for diplomacy in Asia (the Asia-Pacific Economic Cooperation forum).

Sarotte makes a good argument that Russia was left resenting the outcome. Yet consider this passage from her book: "Gorbachev would complain to [U.S. Secretary of State James] Baker in 1991 that the money from Kohl had already vanished: 'Things disappear around here. We got a lot of money for German unification, and when I called our people, I was told they didn't know where it was. [Aleksandr] Yakovlev told me to call around, and the answer is no one knows.'" "Clearly," Sarotte goes on, "Moscow needed more than just credits to ease its transition to being a modern market economy, but (other than from Bonn) it got little. Western advisers would descend on Russia later en masse, of course. But they arrived after fatal resentments had already piled up." After rereading that passage a few times, it seems that devising a happier outcome would have indeed required the application of some rare form of genius.

Given the collapse of communist rule in Eastern Europe, the backwash that accelerated the collapse of the Soviet Union itself, and the return of Russia's borders to approximately those it had had in the eighteenth century, what may instead seem amazing is that the diplomacy muted Moscow's resentment as much as it did. This again is a tribute to Gorbachev and several members of his team. The cordial relations between Washington and Moscow in August 1990 were invaluable as the endgame of German unification converged with another crisis, the need for diplomacy to rally the world -- and the UN -- against Iraq, a country that, as it overran Kuwait, was also hosting 10,000 Soviet military advisers.

A FUTURE OF FREEDOM

When, in 1947, Orwell articulated his scenario to save the world, with his vision of a humane example of progress led by a more united Europe, he identified four formidable obstacles: Russian hostility, American hostility, imperialism, and the Catholic Church. The future seemed bleak. "The actual outlook, so far as I can calculate the probabilities, is very dark," he wrote, "and any serious thought should start out from that fact." These four fears still deserve serious thought, although now, aided by books like these, one can reflect instead on Russians who fell for the European ideal, Americans who nurtured a positive vision, the decline of the imperialism Orwell knew, and a Catholic Church that inspired fights for freedom.

In 1964, Burnham, the author of the nightmare vision that so provoked Orwell, was helping William F. Buckley edit the National Review. (Reagan would later award Burnham the Medal of Freedom.) At the time, Burnham's latest book had administered another powerful dose of pessimism. Titled Suicide of the West, in it Burnham argued that modern liberalism had lost the fervor of classical liberalism. The modern variant treated peace and security as equal to or greater than the commitment to preserving freedom. Since the focus on peace denigrated the use of power against a ruthless foe, Burnham predicted that the West was slowly committing suicide.

History dealt Burnham's argument a strange hand. He would be pleased to see that a belief in defending the West was a factor in the American and European revival. But the positive, dynamic ideal offered in Western European countries and Japan was so magnetic precisely because those countries seemed to be discarding their traditional reliance on force and hard power.

At supreme moments of crisis in 1989 and 1990, critical choices were indeed made in favor of peace, in favor of nonviolent change. But those choices were made by men groomed from adolescence to be model Communist leaders. The suicide was in the East, not the West. And the suicide was not an act of self-destruction. Theirs was an act of creation.