The Vietnamization of America's Middle Eastern Wars

More and more, America's wars in the Middle East and Africa bear a disturbing resemblance to the Vietnam War.   The Afghanistan war papers revealed that the government hasn't been truthful about the U.S. military efforts in Afghanistan, and that there is no path to victory.  https://news.yahoo.com/afghanistan-war-american-people-lied-to-washington-post-papers-201042599.html.  We earlier learned that the government's claim that Iraq had weapons of mass destruction--the justification used by the George W. Bush administration for invading Iraq in 2003--was also a lie.  https://www.salon.com/2015/05/20/george_w_bushs_cia_briefer_admits_iraq_wmd_intelligence_was_a_lie/.  These stories are reminiscent of the Pentagon Papers, which in 1969 revealed the Pentagon had lied to the American people about the Vietnam War, greatly inflating the prospects for victory while thousands of troops died for its lies.  But the Pentagon Papers didn't say much that surprised the troops who had fought in Vietnam.  They already knew the war was unwinnable.  Morale among U.S. troops in Vietnam was so bad that drug and alcohol use were rampant in the ranks, desertion was disturbingly frequent, and alleged fratricide in the form of killing officers an occasional measure supposedly taken to avoid seemingly pointless casualties and death. 

Now we are hearing that many members of the military oppose America's wars in the Middle East.  https://www.salon.com/2020/01/12/many-soldiers-want-to-stop-fighting-lets-build-a-movement-that-welcomes-them_partner/ and https://www.newsweek.com/combat-veteran-gold-star-husband-support-trump-ending-wars-1471550. Perhaps some 50,000 or more troops have resisted service in these wars.  https://nymag.com/intelligencer/2015/03/what-happens-to-most-awol-soldiers.html.
This military opposition to the war ominously changes the dynamics of the U.S. Middle Eastern wars.  When the troops themselves lose their sense of mission, the possibility for success evaporates.  Who wants to die to further Donald Trump's impulsive, strategy-light decisions? 

America's leadership can offer endless rationales for having some 80,000 U.S. troops in the Middle East and Africa.  But experience has taught that these rationales and $2 will buy a newspaper.  The government has no strategy for victory and our troops know it.  Refusing to acknowledge or deal with this reality didn't result in success in Vietnam, and it won't result in success now.  Even though America wisely stopped drafting men to into the military after the debacle of the Vietnam era, we can't expect that an all-volunteer military will blindly obey orders and die pointlessly.  Retreat and withdrawal are never easy.  But America's withdrawal from Vietnam, although deeply painful, also marked the beginning of a process of reconciliation, healing and growth.  America remained the world's most powerful nation and has enjoyed growth and prosperity since then. While there are many problems here that must be resolved, problems that may seem intractable at times, fighting unwinnable wars will only make things worse.  The wars in the Middle East and Africa have morphed into latter day Vietnam Wars.  Let's get out now.

Why the Economy Could Grow: the Peace Dividend

Contrary to the expectations of many economists and financial market professionals, the U.S. economy seems to be growing reasonably well.  In the third quarter of 2013, growth was 4.1%.  For a mature, industrial economy, a 4.1% rate is good.  The Cassandras among pundits warn that it can't last.  They could be right--but they also could be wrong.

When one looks at what would impel further growth, many of the usual suspects don't seem to be helping much.  Business investment is tepid.  Income growth in the aggregate is even more tepid.  Only the the top few percent have no fear of the Grinch this Christmas.  The federal government is reducing its spending growth--primarily due to sequestration, but even the new budget deal doesn't offer major spending increases.  U.S. exports have been an economic bright spot the last few years, but America isn't an export driven nation and exports can't turn the economy around by themselves.

What, then, could be producing the growth?  The Federal Reserve's accommodative policies no doubt play a role, although much of the case for reducing quantitative easing is that its marginal impact is diminishing, and very possibly evaporating.  The Fed hasn't done anything lately to produce a growth spurt.  Its primary role has been to keep a thumb in the dike until other forces cause the economy to perk up.

But one factor to bear in mind is that America may be starting to enjoy a peace dividend.  The end of major wars is almost always followed by a period of prosperity.  The Civil War was followed by the rapid growth of the Gilded Age.  World War I was followed by the Roaring Twenties.  World War II was followed by decades of prosperity.  And the conclusion of the Cold War in 1990 was followed by the prosperity of the 1990s.  Only the end of the Vietnam War wasn't followed by a growth spurt, and that might well be attributable to the oil price shocks administered by OPEC, which transferred a great deal of wealth to oil producers and away from the consumers who comprise two-thirds of the U.S. economy.

Even though America remains embroiled in seemingly never-ending conflict, we have a peace dividend in the offing.  The war in Iraq is over.  The war in Afghanistan is winding down.  Although U.S. military and security personnel continue to confront challenges in the Middle East, Africa, Asia and Latin America, none of them involve the expenditure of hundreds of billions of dollars, as did the recent Iraq and Afghan wars.  Large amounts of America's wealth that were being spent on weapons and fighting overseas can now be shelled out for double bacon cheeseburgers, big screen TVs, three-quarter ton pickup trucks, smart phones, Legos sets, kitchen re-modelings, really big cups of soda in New York City, vacuous tattoos, frisbees, pre-mixed cocktails, trips to Graceland, and doggie pedicures.  And a lot of other stuff as well.  Giving peace a chance could be the best federal economic policy of the times.  Even though there surely will be ups and downs in the economy in the coming years, the peace dividend offers a powerful reason to hope for the best.

The Debt Ceiling Crisis: Did McConnell Just Throw Obama Into a Briar Patch?

Today, Mitch McConnell, the leader of the Republicans in the Senate, proposed a "backup" plan for the debt ceiling crisis: a law that would allow President Obama to raise the debt ceiling in three steps over the remainder of his presidency. The proposed law provides an elaborate procedure for Democrats and Republicans to tag each other "It." Obama would tell Congress of an increase in the debt limit. Congress could (and perhaps would) adopt a resolution opposing the increase. The President would then veto Congress' resolution. The Republicans would be unable to override the veto since Congress, as currently constituted, would not give debt ceiling opponents the two-thirds majority needed. Obama could use this procedure to increase the debt ceiling by a total of $2.4 trillion through the end of 2012.

Failure to raise the debt ceiling could cause chaos in the financial markets, and trigger an economic downturn. Opinion polls show that much (and perhaps most) of the blame would fall on the Republicans. McConnell surely wants to steer his party away from self-immolation. At the same time, unilateral increases in the debt ceiling might weaken Obama's standing with swing voters in the middle, bettering the chances for a Republican victory in next year's presidential elections.

Obama himself may be wary of the Republican proposal, because he would three times be taking action that would appear profligate in a time when austerity seems to be in political vogue. The amount of increased borrowing he could authorize--$2.4 trillion--is slightly below the $2.5 trillion to $2.7 trillion projected as the government's increased borrowing needs through the end of 2012. So McConnell's proposal would keep Obama on a fairly tight leash, and expose him to being excoriated by right wing debt ceiling zealots three more times before he faces the 2012 election.

At the same time, though, Obama would get an opportunity to shift his attention away from the deranged histrionics that now permeate the debt ceiling debate. He could focus on tax and entitlements reform (where the budget deficit problem will really be solved). He could also stay on top of defense matters. Completion of our withdrawal from Iraq, and a brisk drawdown from Afghanistan might do much to close the gap between the $2.4 trillion debt increase McConnell would allow, and the $2.5 trillion to $2.7 trillion Obama is projected to need.

Although the White House hasn't reacted to McConnell's proposal, it may go along in the end. One clever aspect of the McConnell proposal is that it allows both Democrats and Republicans to cater to their respective alternative political universes. The Republicans would allow the debt ceiling to increase--something they really have little choice about--while forcing the President to take the blame for this heresy by vetoing Congressional objections. The debt ceiling ideologues on the right would have a field day doing what they like best--babbling 17-second soundbites for the evening news. The Democrats in Congress would avoid a distasteful task (neither party likes having to raise the debt ceiling), while the President would three times have to grit his teeth momentarily but then be able to get on with more substantive matters. This may be a briar patch he doesn't mind being tossed into.

Commentators on the right have already blasted McConnell's proposal. That alone tells you it could be a sensible compromise. It wouldn't give the President the grand $4 trillion long term deal he's been seeking, so he can't claim it's a victory. Moreover, McConnell has now positioned the debt ceiling zealots to take the blame if his proposal isn't enacted, the debt ceiling isn't raised, and the financial markets tank. That surely infuriates the Tea Partiers who have bedeviled McConnell's efforts to negotiate with the President.

McConnell may be aiming to forestall a longer term checkmate for the Republicans. The extension of the Bush tax cuts, enacted last fall, expires at the end of 2012. That means the Democrats get the tax increases they want simply by not agreeing to extend the Bush cuts again. They don't need to negotiate with the Republicans to raise taxes. They can simply wait, and they win the waiting game if President Obama is re-elected next year. By forcing the President to take the initiative on raising the debt ceiling, three times no less in the next 18 months, McConnell may weaken Obama's chances for re-election.

Because of right wing fury, there's no certainty that McConnell's proposal will become law. Many in his own party already question it. McConnell himself may have floated the idea simply to send his Tea Partying colleagues a message that they should talk turkey instead of preaching hellfire and damnation. The debt ceiling crisis remains far from resolution. Don't bet the rent money on the financial markets being stable in the near future.

Washington Today: End Game in Afghanistan, No End Game in Financial Markets

The war in Afghanistan will wind down for NATO troops. That's clear from today's news. Leon Panetta will take over the Defense Department from Robert Gates. Gen. David Petraeus will get Panetta's job running the CIA. Adm. Mike Mullen, Chairman of the Joint Chiefs of Staff, isn't eligible to be renominated. The chain of command that presided over last year's surge in Afghanistan is being dismantled. That's one of the easiest ways in Washington to change policy. Top officials don't have to change their minds; they just change jobs.

By drawing down forces in Afghanistan, President Obama would keep a campaign promise, and satisfy the wishes of the majority of Americans who recent polls indicate want the U.S. out of the war. Besides, there's more than one way to skin this cat. Today's Wall Street Journal reports on P. 1 that the Pakistani government has urged the Afghan government to join in an alliance with Pakistan and China. The Pakistanis, who may be worse enemies of America than the Afghans, are now more aggressively undermining America than ever before. America's relations with India are improving, and we may be better off easing out of Afghanistan and Pakistan, and exercising influence in South Asia by strengthening ties with New Dehli.

Meanwhile, back at the Fed, Chairman Bernanke did a fairly decent imitation of Alan Greenspan at the Fed's first ever press conference. Bernanke said . . . well, try to figure out what he said. The reaction of most listeners was to parse, then parse some more, and then parse some more. Greenspan was famous for lengthy vocalizations that meant little except, "I'm keeping my options open." Looks like Bernanke prepared for today by watching old game films from the Greenspan era.

The Fed itself released a statement earlier today, following its April meeting, in which it said it would stay the course. So the sum total of this month's Fed meeting and today's press conference is we know pretty much what we knew before. The stock market took it all positively, assuming that the Fed will keep the monetary printing presses rolling 24/7. Maybe. But Bernanke did keep all options open. His remarks that could mean QE3 is coming could also mean that the Fed will drain liquidity, depending on circumstances.

And that's the problem with today's Fed. Even though Ben Bernanke has said he wants to provide greater transparency, the tendency of the markets to pop or swoon over a lifted eyebrow or a hint of a frown has forced him to be measured, and then cautious, and today, simply ambiguous. He ends up telling us very little, which lets the markets interpret his remarks as they wish and force the Fed to follow their lead. Today's positive market reaction highlights the financial system's dependence on subsidies from the Fed, and increases the cost to the Fed of changing its policies. A fall in the stock market is virtually guaranteed whenever the Fed changes policies, and that puts enormous political pressure on the Fed to keep printing money indefinitely. By purporting to provide transparency, but not actually doing so, the Fed is losing control over monetary policy. All this is fine if no amount of money printing leads to significant inflation. If only we lived in Wonderland, where one can believe as many as six impossible things before breakfast.

Let's Be Thankful

That:

Congress is looking closely at the Fed. In the last few years, the Fed has done a terrible job, and then a good (but risky) job dealing with the consequences of its terrible job. Some close scrutiny and double guessing would be healthy for the Fed. Congress may moderate the Fed's responsibilities and power, which could turn out for the better. Making the Fed into an uber-regulator, as proposed by the administration, would be a very risky move. Virtually all of the government's power to deal with a financial crisis would be vested in a single agency that too vigorously resists oversight. The potential for narrow focus, an oversupply of certitude in its own wisdom, and increased traffic through the revolving door make such a concentration of regulatory power a bad idea. Even though Congress is proceeding with a maximum of soundbite histrionics that obscure the substantive importance of the issues, it's making the Fed take a hard and careful look at itself. That's Congress' role in the Constitutional structure of the government, and the Fed will be a better agency after enduring the cacophony of democracy.

Retail investors have sat out the stock market rally. An objective look at the evidence strongly suggests that, for the next year or so, the market has quite a bit more downside risk than upside. Maybe stocks will drift a bit higher. But only those that believe assets only rise in value and never fall would think that 2010 will be a banner year for stocks. The good thing about retail investors sidelining themselves is that if and when the market falls, the impact on consumption will probably be less than 2008's nosedive. If your portfolio hasn't been hammered, you'll have less gut level fear of $4 lattes.

Health insurance reform is progressing. It seems like just about every alternative is criticized for involving increased costs. But the question is compared to what? Health care costs have risen faster than inflation for decades. Health care now absorbs about 16% of GDP and is expected to rise to about 20% in ten years. If a reformed health insurance system provides more comprehensive and fairer coverage, isn't that a worthwhile result? Costs are going to rise anyway if we leave our current incomplete and unfair system in place. Costs are a very important issue, but not reforming health insurance coverage isn't going to keep costs under control. We should work to achieve comprehensive and fair coverage now. Costs will be debated and dealt with as far as one can see into the future, because they'll always be an issue.

U.S. troop levels in Iraq are falling. Iraq wasn't and isn't of strategic consequence to the United States. That's why W and Dick, with their juvenile, tunnel-vision machismo, recklessly weakened the U.S. military by fighting an unnecessary war at a time of rising worldwide commitments for America. The real problems--the growing quagmire in Afghanistan, a soon-to-be nuclear armed Iran, the security of Pakistan's nuclear arsenal, safe havens for terrorists in Pakistan, Yemen and elsewhere, and the twilight zone quality of North Korea's bipolar Kabuki theatrics over missiles and nuclear weapons--will absorb all the resources the U.S. can muster.

Jon and Kate are going off the air. We like the 8. But, toward the end, Jon and Kate were mostly enriching TLC and the tabloids while sounding, shall we say, a bit tiresome.

We're reading less about Lindsay, Paris and Britney. After you've read 100 train wreck stories, the 101st really isn't all that interesting. But fear not for the tabloids. They've always got Brad, Angie and Jennifer.

Time for a Peace Dividend

One reason why the 1990s were a period of great prosperity was the peace dividend, the reduction in government spending resulting from the end of the Cold War. When the Soviet Union collapsed in 1991, the U.S. was able to greatly reduce military spending. Freeing up billions of dollars for private sector investment and spending allowed the civilian economy to prosper.

A major reason why the U.S. now burdens under enormous deficits is the ill-conceived war in Iraq, which caused the federal budget's surplus at the end of the Clinton Presidency to go negative to the tune of hundreds of billions of dollars during the George W. Bush Presidency. The war in Iraq is winding down. But military spending hasn't abated significantly because of the war in Afghanistan.

The President is wrestling with the problem of increasing troop levels in Afghanistan. While much has been leaked to the press about this supposedly secret issue, not enough has been leaked to justify stepping up the war. There has been no articulation of an achievable goal. Lasting military victory is essentially impossible. Whatever Allied troops may accomplish at any location where they are concentrated, the Taliban can always retreat into Pakistan (our ally, as it were), where they will receive sanctuary and succor. Then, when rested, resupplied and reinforced, they can probe the endlessly snarled and remote Pakistan-Afghanistan border until they find a weak spot and return to fight another day. A similar strategy of fighting and then retreating into safehavens was used by Afghan mujahideen guerillas in the 1980s to fight and eventually defeat a Soviet force much larger and nastier than the current Allied force. How could an even enlarged Allied force, with its current rules of engagement, inflict lasting defeat on the Taliban?

Politically, the Bush II administration's guy in Kabul, Hamid Karzai, is rapidly losing any legitimacy as a result of rampant voting fraud in the recent Afghan elections. If even half of the allegations about Karzai's camp are accurate, one would have to conclude that, in a head-to-head election, Karzai could have beaten Richard Daley the elder by a landslide. Nation building in Iraq had a degree of success only because the Shiite majority was able to participate in largely fair elections. We now have a morass in Afghanistan that brings to mind the Diem brothers, whose corrupt rule of Vietnam was brought to an end by their U.S.-approved assassination in 1963.

The Taliban are primarily Pashtun, the largest ethnic group in eastern Afghanistan and northwestern Pakistan. In essence, the U.S. and its allies are very close to fighting a 19th century colonial war, trying to suppress the local populace and install a friendly government that would be perceived as a puppet regime. The experience of the erstwhile European colonial powers teaches that this isn't a winning strategy.

The U.S. has no vital national interest in conquering the Pashtun or the Taliban. We should work toward a negotiated resolution with Taliban leaders in which they are made to understand that harboring Al Queda will bring a robust U.S. military response, and ejecting Al Queda from its Pakistani sanctuaries will bring a meaningful flow of dollars. That wouldn't be pretty, but it's how we attained--rather, bought--peace in Iraq. A number of Sunni and Shiite leaders in Iraq were the beneficiaries of U.S. payments. They called off the young men from their tribes and assisted Allied intelligence in identifying Al Queda personnel. Al Queda was suppressed to a large degree, and the ensuing drop in violence gave the U.S. political cover to withdraw its troops from combat operations.

Going back in time, we did the same thing in the 1970s. For the last 30 or so years, Egypt has been the recipient of billions of dollars of U.S. aid. The sole--repeat, sole--reason for this aid was Egypt's willingness to sign a peace treaty with Israel. We're paying the Egyptians to refrain from burning off ammo in Israel's direction. Why not pay the Taliban to stop shooting at American personnel?

America needs a peace dividend. The costs of economic stimulus, health care reform, Social Security and Medicare loom more than ever before. There are many good reasons aside from financial cost to wind down the Afghan war. But in a time of economic distress and uncertain prospects for the future, ending an increasingly unpopular war would not only be the right thing to do, it would probably be a fiscally smart thing to do.

Presidents haven't suffered politically for taking America out of military morasses. Ronald Reagan's standing was hardly damaged at all by his 1983 decision to withdraw U.S. troops from hopeless entanglement in Lebanon. Bill Clinton's legacy suffered no lasting tarnish from his decision to pull U.S. forces out of the chaos in Somalia. Richard Nixon's tarnished legacy was probably improved by his decision to sign a peace treaty with North Vietnam, even though doing so made an eventual North Vietnamese victory in the South predictable. Dwight Eisenhower was elected on his promise to negotiate an end to the stalemated fighting in Korea. Barack Obama doesn't yet bear the blame for America's mistakes in Afghanistan and could look presidential by folding a bad hand.

The Obama Administration's Best Bet: Take the Common Sense Approach

The unifying theme in President George W. Bush's two terms was his wealth of self-assurance. He was certain he knew the answers. He stuck hard to the principles in which he believed. He had too much faith in the amen chorus with which he surrounded himself, and gave them too much free rein.

The cost was enormous. Year after year, casualties in Iraq grew while the war continued with no end in sight. Even as military expenditures rose sharply, taxes were dramatically cut with little thought seemingly given to the long term consequences. The federal deficit ballooned, but we were told to take comfort from the beneficial effects that would come from making the wealthy wealthier. The financial markets were provided with vast amounts of cheap credit, and given a deregulatory atmosphere in which to mainline it. Real estate was favored because, in defiance of economic reality, it supposedly would be the golden goose of legend, the asset that would never fall in value. Derivatives were given the Mother of all legal loopholes, which led to the stealth creation of a vast, multi-trillion dollar unregulated banking system that went unnoticed by regulators until it collapsed.

Absent from the picture was a decent measure of proportion, moderation, and common sense. Adherence to the administration's received truths took precedence over contact with reality. Apostates were banished and true believers drew closer together in the firmness of their beliefs.

The Bush Adminstration's rigidity was one of the main advantages Barack Obama had going into last fall's general election. The electorate had had its fill of closed-minded, inflexible wackiness that threw away lives and money. The voters wanted change.

They've gotten less than they might have hoped for. The Obama administration has generally followed the same approach in dealing with the financial and economic crises as their predecessors. There is momentary calm, but really big deficits loom and the real estate market's problems have been swept under the carpet instead of being resolved. Its health insurance reform proposal is being shouted down, with volume substituting for reason. The American war in Iraq is winding down (although the Iraqi war isn't). However, the American war in Afghanistan is ramping up, as is the American proxy war in Pakistan.

It's important for the Obama administration to take some big steps back from the extremes of the Bush administration's policies. That's what Barack Obama was elected to do. At the same time, it's important for him not to become caught up in new extremes. We need some common sense.

For health insurance reform, let's institute the Great American Compromise. Like all industrialized nations, America spent much of the 20th Century coming to grips with the harshness of capitalism. While the free enterprise system is wonderful for innovation and economic growth, it spawns great inequality of wealth that triggers social unrest. Not all of the 20th Century solutions for this problem worked well (see history of Nazi Germany and the Soviet Union for illustrative examples). However, the American solution was to establish safety nets: unemployment compensation for wage earners innocently caught in economic downdrafts, Social Security to alleviate the poverty of the elderly and those unable to work, Medicare and Medicaid, and various welfare programs. The free enterprise system was largely left unchanged. People kept their private property, pursued their personally chosen careers, and in many cases vigorously exercised their Constitutional right to cuss out the government.

It's clear that those with good health insurance coverage don't want to give it up for the sake of health insurance reform. Nor should they have to. The biggest need is for a safety net--basic health insurance for those who can't find a private insurer. We already have such a system--it's called Medicare in some manifestations and Medicaid in others. These programs were created to provide health insurance for the elderly and poor, who would generally be uninsured anyway. Allowing other uninsured people to participate wouldn't be a terribly difficult modification. Their premiums could be adjusted for their ability to pay--a laid-off Wall Street millionaire would pay fair market rates while a laid-off furniture worker in North Carolina would get a break. Sidestep all the mouth-frothing about a National Health Service or single payer system. Just extend the safety net.

In Afghanistan and Pakistan, the U.S. and its allies are largely fighting members of just one ethic group, the Pashtun. The membership of the Taliban consists primarily of Pashtuns. They have successfully partitioned off part of Pakistan for their own country within a country, and give sanctuary to Al Queda in keeping with longstanding Pashtun traditions of hospitality and refuge for visitors in need. The United States has no strong interest in fighting the Taliban or other Pashtuns. They did not attack the World Trade Center or the Pentagon (the mostly Arab Al Queda did that). The U.S. should open channels of communication with the Taliban and other Pashtun groups, making it clear that harboring Al Queda will result in robust U.S. military action, but that peace is attainable if the house guests take a hike. It may seem implausible that the Taliban would make a deal with America. But the Shiites in Iraq did just that during the recent surge, and gave Al Queda the boot from their country. We should focus on destroying Al Queda, not fighting people who have not sought to fight with us.

The really big looming deficits stem from both the Bush administration's unwavering belief that they could get a free lunch--finance a tremendously expensive war in Iraq while sharply cutting taxes while increasing Medicare benefits (with Medicare D, the prescription drug program)--and the Obama administration's stimulus package. Since some 80% of government spending consists of entitlements like Social Security and Medicare, the government can't cut its way out of the fiscal mess. It will have to increase tax collections. That's just common sense. Letting the Bush tax cuts lapse would be a simple way of doing that--they're built into the Bush legislation anyway so nothing needs to be pushed through an increasingly rancorous Congress. But not fixing the alternative minimum tax would be a mistake. The alternative minimum tax is the stupidest tax in the Internal Revenue Code, taking back what the regular tax structure allows and hitting the middle class whom Barack Obama promised to protect against tax increases. The AMT has long ceased to serve its intended purpose and should be repealed or permanently adjusted way upward to hit only the wealthy (and kept upward with an automatic annual inflation adjustment, like the regular tax structure). Maybe more taxes will ultimately be needed. But let's start with the simple thing and let the Bush tax laws take their prescribed course.

In terms of financial and economic policy, the government has thus far dodged the difficult problems (like toxic bank assets, the festering illness that remains in the housing market and the spreading illness in commercial real estate) and softened their impact with the Federal Reserve's printing presses and stimulus legislation. But those problems haven't gone away, and with the real estate market likely to stagnate for years, they won't go away by themselves. These losses--cleverly pushed by Bush administration policies into President Obama's stewardship--will have to be booked eventually. That process is happening already, with each Friday afternoon's announcements of the past week's tally of failed banks. We're up to 84 failed banks for this year already, and many more collapses are expected. Real estate losses and losses from toxic assets will be booked one way or another. The only question is how and when. The banking system won't resume large scale lending while these zombie assets remain on its books. And the Federal Reserve can't keep printing money; indeed, it's trying to figure out how to get all those printed dollars back. Resolving these problems won't be simple. But common sense tells us that we can't avoid them indefinitely, and allowing them to fester may well make things worse in the long run. Green shoots can be overcome by noxious weeds.

One final common sense point. It's time for the administration to ignore the stock market. There is a fin de siecle quality to the market. Upwards of 40% of last week's trading on the New York Stock Exchange was in 4 financial stocks: Citigroup, Bank of America, Fannie Mae and Freddie Mac. There's nothing publicly known about these four companies that justifies this much attention. AIG stock is up some 250% for the month of August to date. That's even weirder, considering that there's no news about AIG, except that the new CEO has reportedly had some conversations with a former CEO, Hank Greenberg. Some rumors have it that Greenberg might be thinking of buying AIG back. But let's recall that the U.S. government, through the SEC, just settled an enforcement lawsuit against Greenberg, charging him with responsibility for improper accounting. He agreed (without admitting or denying wrongdoing) to pay $15 million. Do we really think that the U.S. government, which effectively owns AIG, would sell the company back to a guy it just punished? And then there's GM stock, which has traded all summer at a positive price. That's looney. The publicly traded GM stock is for ownership in the residual company that's going to be liquidated. The U.S. government bailed out, Fiat affiliated company that is making the Chevy Volt isn't traded publicly at all right now. The common stock of the residual company is worthless. But apparently not to numerous buyers in the stock market.

The market rally has become increasingly concentrated in a few large cap stocks. This brings to mind the halcyon days of late 1999 and early 2000, just before the big tech stock collapse. The market rally of those days also became increasingly concentrated in a few big stocks. If that handful of stocks stumbled, then the house would be revealed to be made of collapsing cards. They did, and it was.

Day trading is becoming fashionable again. That's always a bad sign, because the least knowledgeable and most inexperienced traders tend to jump in just before indexes nose dive. The fact that corporate insiders are now selling about 30 times as much of their own companies' stock as they buy (as opposed to an average of 7 times sales to buys) is another hint that the salad days will be short-lived. If the smartest money is selling heavily, what's the logic to buying?

Of course, all presidential administrations deny that their policies are affected by the stock market. But there hasn't been one yet that doesn't scrutinize market indexes. If the Obama administration fixates on stock market movements, it will find itself straitened into dysfunction or adopting policies that exacerbate problems instead of cure them. At some point, common sense dictates that governments can't stop lunacy snd shouldn't try.