Obama claims he’s launched a political war against Israel in the interest of promoting peace. But this claim, too, does not stand up to scrutiny.

Why has President Barak Obama decided to foment a crisis in US relations with Israel?

Some commentators have claimed that it is Israel’s fault. As they tell it, the news that Israel has not banned Jewish construction in Jerusalem – after repeatedly refusing to ban such construction – drove Obama into a fit of uncontrolled rage from which he has yet to recover.

While popular, this claim makes no sense. Obama didn’t come to be called “No drama Obama” for nothing. It is not credible to argue that Jerusalem’s local planning board’s decision to approve the construction of 1,600 housing units in Ramat Shlomo drove cool Obama into a fit of wild rage at Prime Minister Binyamin Netanyahu.

Obama himself claims that he has launched a political war against Israel in the interest of promoting peace. But this claim, too, does not stand up to scrutiny.

On Friday, Obama ordered Secretary of State Hillary Clinton to present Netanyahu with a four-part ultimatum.

First, Israel must cancel the approval of the housing units in Ramat Shlomo.

Second, Israel must prohibit all construction for Jews in Jerusalem neighborhoods built since 1967.

Third, Israel must make a gesture to the Palestinians to show them we want peace. The US suggests releasing hundreds of Palestinian terrorists from Israeli prisons.

Fourth, Israel must agree to negotiate all substantive issues, including the partition of Jerusalem (including the Jewish neighborhoods constructed since 1967 that are now home to more than a half million Israelis) and the immigration of millions of hostile foreign Arabs to Israel under the rubric of the so-called “right of return,” in the course of indirect, Obama administration-mediated negotiations with the Palestinians. To date, Israel has maintained that substantive discussions can only be conducted in direct negotiations between Israeli and Palestinian officials.

If Israel does not accept all four US demands, then the Obama administration will boycott Netanyahu and his senior ministers. In the first instance, this means that if Netanyahu comes to Washington next week for the AIPAC conference, no senior administration official will meet with him.

Obama’s ultimatum makes clear that mediating peace between Israel and the Palestinians is not a goal he is interested in achieving.

Obama’s new demands follow the months of American pressure that eventually coerced Netanyahu into announcing both his support for a Palestinian state and a 10-month ban on Jewish construction in Judea and Samaria. No previous Israeli government had ever been asked to make the latter concession.

Netanyahu was led to believe that in return for these concessions Obama would begin behaving like the credible mediator his predecessors were. But instead of acting like his predecessors, Obama has behaved like the Palestinians. Rather than reward Netanyahu for taking a risk for peace, Obama has, in the model of Yasser Arafat and Mahmoud Abbas, pocketed Netanyahu’s concessions and escalated his demands. This is not the behavior of a mediator. This is the behavior of an adversary.

With the US president treating Israel like an enemy, the Palestinians have no reason to agree to sit down and negotiate. Indeed, they have no choice but to declare war.

And so, in the wake of Obama’s onslaught on Israel’s right to Jerusalem, Palestinian incitement against Israel and Jews has risen to levels not seen since the outbreak of the last terror war in September 2000. And just as night follows day, that incitement has led to violence. This week’s Arab riots from Jerusalem to Jaffa, and the renewed rocket offensive from Gaza are directly related to Obama’s malicious attacks on Israel.

But if his campaign against Israel wasn’t driven by a presidential temper tantrum, and it isn’t aimed at promoting peace, what explains it? What is Obama trying to accomplish?

There are five explanations for Obama’s behavior. And they are not mutually exclusive.

First, Obama’s assault on Israel is likely related to the failure of his Iran policy. Over the past week, senior administration officials including Gen. David Petraeus have made viciously defamatory attacks on Israel, insinuating that the construction of homes for Jews in Jerusalem is a primary cause for bad behavior on the part of Iran and its proxies in Iraq, Afghanistan, Lebanon, Syria and Gaza. By this line of thinking, if Israel simply returned to the indefensible 1949 armistice lines, Iran’s centrifuges would stop spinning, and Syria, al-Qaida, the Taliban, Hizbullah, Hamas and the Iranian Revolutionary Guards would all beat their swords into plowshares.

Second, even more important than its usefulness as a tool to divert the public’s attention away from the failure of his Iran policy, Obama’s assault against Israel may well be aimed at maintaining that failed policy. Specifically, he may be attacking Israel in a bid to coerce Netanyahu into agreeing to give Obama veto power over any Israeli strike against Iran’s nuclear installations. That is, the anti-Israel campaign may be a means to force Israel to stand by as Obama allows Iran to build a nuclear arsenal.

For the past several months, an endless line of senior administration officials have descended on Jerusalem with the expressed aim of convincing Netanyahu to relinquish Israel’s right to independently strike Iran’s nuclear installations. All of these officials have returned to Washington empty-handed. Perhaps Obama has decided that since quiet pressure has failed to cow Netanyahu, it is time to launch a frontal attack against him.

This brings us to the third explanation for why Obama has decided to go to war with the democratically elected Israeli government. Obama’s advisers told friendly reporters that Obama wants to bring down Netanyahu’s government. By making demands Netanyahu and his coalition partners cannot accept, Obama hopes to either bring down the government and replace Netanyahu and Likud with the far-leftist Tzipi Livni and Kadima, or force Israel Beiteinu and Shas to bolt the coalition and compel Netanyahu to accept Livni as a co-prime minister. Livni, of course, won Obama’s heart when in 2008 she opted for an election rather than accept Shas’s demand that she protect the unity of Jerusalem.

The fourth explanation for Obama’s behavior is that he seeks to realign US foreign policy away from Israel. Obama’s constant attempts to cultivate relations with Iran’s unelected president Mahmoud Ahmadinejad, Ahmadinejad’s Arab lackey Syrian dictator Bashar Assad, and Turkey’s Islamist Prime Minister Recep Tayyip Erdogan make clear that he views developing US relations with these anti-American regimes as a primary foreign policy goal.

Given that all of these leaders have demanded that in exchange for better relations Obama abandon Israel as a US ally, and in light of the professed anti-Israel positions of several of his senior foreign policy advisers, it is possible that Obama is seeking to downgrade US relations with Israel. His consistent castigation of Israel as obstructionist and defiant has led some surveys to claim that over the past year US popular support for Israel has dropped from 77 to 58 percent.

The more Obama fills newspaper headlines with allegations that Israel is responsible for everything from US combat deaths in Iraq and Afghanistan to Iran’s nuclear program, the lower those numbers can be expected to fall. And the more popular American support for Israel falls, the easier it will be for Obama to engineer an open breach with the Jewish state.

The final explanation for Obama’s behavior is that he is using his manufactured crisis to justify adopting an overtly anti-Israel position vis-à-vis the Palestinians. On Thursday, The New York Times reported that administration officials are considering having Obama present his own “peace plan.” Given the administration’s denial of Israel’s right to Jerusalem, an “Obama plan,” would doubtless require Israel to withdraw to the indefensible 1949 armistice lines and expel some 700,000 Jews from their homes.

Likewise, the crisis Obama has manufactured with Israel could pave the way for him to recognize a Palestinian state if the Palestinians follow through on their threat to unilaterally declare statehood next year regardless of the status of negotiations with Israel. Such a US move could in turn lead to the deployment of US forces in Judea and Samaria to “protect” the unilaterally declared Palestinian state from Israel.

Both Obama’s behavior and the policy goals it indicates make it clear that Netanyahu’s current policy of trying to appease Obama by making concrete concessions is no longer justified. Obama is not interested in being won over. The question is, what should Netanyahu do?

One front in the war Obama has started is at home. Netanyahu must ensure that he maintains popular domestic support for his government to scuttle Obama’s plan to overthrow his government. So far, in large part due to Obama’s unprecedented nastiness, Netanyahu’s domestic support has held steady. A poll conducted for IMRA news service this week by Maagar Mohot shows that fully 75% of Israeli Jews believe Obama’s behavior toward Israel is unjustified. As for Netanyahu, 71% of Israeli Jews believe his refusal to accept Obama’s demand to ban Jewish building in Jerusalem proves he is a strong leader. Similarly, a Shvakim Panorama poll for Israel Radio shows public support for Kadima has dropped by more than 30% since last year’s election.

The other front in Obama’s war is the American public. By blaming Israel for the state of the Middle East and launching personal barbs against Netanyahu, Obama seeks to drive down popular American support for Israel. In building a strategy to counter Obama’s moves, Netanyahu has to keep two issues in mind.

First, no foreign leader can win a popularity contest against a sitting US president. Therefore, Netanyahu must continue to avoid any personal attacks on Obama. He must limit his counter-offensive to a defense of Israel’s interests and his government’s policies.

Second, Netanyahu must remember that Obama’s hostility toward Israel is not shared by the majority of Americans. Netanyahu’s goal must be to strengthen and increase the majority of Americans who support Israel. To this end, Netanyahu must go to Washington next week and speak at the annual AIPAC conference as planned, despite the administration’s threat to boycott him.

While in Washington, Netanyahu should meet with every Congressman and Senator who wishes to meet with him as well as every administration member who seeks him out. Moreover, he should give interviews to as many television networks, newspapers and major radio programs as possible in order to bring his message directly to the American people.

Obama has made clear that he is not Israel’s ally. And for the remainder of his term, he will do everything he can to downgrade US relations with Israel while maintaining his constant genuflection to the likes of Iran, Syria, the Palestinians and Turkey.

But like Israel, the US is a free country. And as long as popular support for Israel holds steady, Obama’s options will be limited. Netanyahu’s task is to maintain that support in the face of administration hostility as he implements policies toward Iran and the Arabs alike that are necessary to ensure Israel’s long-term survival and prosperity.

No and no. Chapter 9 of the U.S. bankruptcy code allows individuals and municipalities (cities, towns, villages, etc.) to declare bankruptcy. But that doesn’t include states. (The statute defines “municipality” as a “political subdivision or public agency or instrumentality of a State”—that is, not a state itself.) For one thing, states are said to have sovereign immunity, as protected by the 11th Amendment, which means they can’t be sued. In other words, they don’t need any protection from angry creditors who would take them to court for failing to pay their debts. As a result, states can simply borrow money ad infinitum.

Say the state can’t make its debt payments, and no one will lend it any more money. In that case, the federal government can step in and put the state into receivership. This would involve the assignment of an accountant to manage the state’s debt, overseen by a judge. It would be a lot like bankruptcy, except instead of following a structured set of steps—informing creditors, appointing creditors’ committees, a 120-day window to file a plan, etc.—a receiver has the authority to force creditors to renegotiate loans in a speedy fashion. However, the accountant in charge would not have the power to make decisions about the state’s budget, such as which programs needed to be cut and which taxes had to be raised. (No state has ever gone into receivership.)

Greece is in a slightly different situation. There’s no international bankruptcy court for countries that can’t pay their debts. Instead, other EU countries that depend on Greece’s solvency, such as Germany or France, would have to agree to bail it out. (When the economy of one member of the Eurozone sinks, it drags the euro down across the continent.) In return for loans, Greece would agree to implement austerity measures, such as hiking the price of gas, freezing government salaries, and raising the retirement age, to steer the country toward solvency. Whichever countries bail out Greece may not get their money back. But at the very least, Greece wouldn’t pull the European economy down with it. Another option would be a bailout funded by the International Monetary Fund or the World Bank, which have stepped in when the economies of Ecuador, Russia, and numerous African countries have tanked. But their leaders seem reluctant. Worst-case scenario, the EU could expel Greece—Greece’s deficit is already four times higher than what the EU allows. But that could hurt the euro as well by signaling to investors that the EU is unstable and thus a risky bet.

A: There are a couple new elements to the rules. One element is essentially an updated version of the uptick rule. The second is a new “circuit breaker” component.

Q: Whoa, I’m already lost. What’s the uptick rule, again?

A: This was a rule — created during the Great Depression — that said traders could only sell a stock short after it rises, i.e. an uptick. The rule was abolished in July 2007. But as the markets tumbled in 2008, there was a general clamor to bring back the uptick rule. The SEC wrote up some proposed rules, asked for comments about it and after reviewing them voted on the new rules today.

Q: Ok, so what’s different about the new uptick rule versus the old uptick rule.

A: Under the old rule, you could short sell at a price above the last trade price, or after the last price was higher than the previous price. Under the new rule, you wouldn’t be able short unless someone was willing to buy it for more than the national best bid. (That is, for a higher price than anyone is currently offering to pay.)

Q: It seems like it’d be hard to find someone willing to pay more for a stock than they have to.

A: It probably would be. That’s the idea. This is supposed to be a curb on shorting.

Q: What’s the advantage of using the best bid versus the last uptick?

A: The SEC says “among other reasons, we believe that bids generally are a more accurate reflection of current prices for a security than last sale prices due to delays that can occur in the reporting of last sale price information and the manner in which last sale price information is published to the markets.”

Q: Ok, got it. Can’t short unless you can get someone to pay more than the current best bid for the stock.

A: That’s only part of it. The second part is “circuit breaker” element.

Q: Oh yeah. What’s that?

A: That part of the rule says that the shorting curbs come in when a stock’s price falls 10% from the previous day’s close.

Q: For how long?

A: For the entire day in which the shares fell below 10 percent and for the following day.

Q: How many stocks is this going to effect?

A: The rule will apply to stocks that are listed on exchanges and traded over the counter. The SEC estimates that about 1.3% of stocks would hit that 10% barrier on any given day, according to Dow Jones. Of course that would likely go up during times of major market stress and volatility, such as the kind we’ve seen over the last couple years.

Billions of dollars are wagered daily in the “carry trade,” in which traders sell the currencies of countries with low interest rates like the U.S. and Japan while simultaneously buying the currency of countries with higher rates like Australia and Brazil.
[scissors] Mark Matcho

These arbitrage opportunities can persist for years at a time. But before you try your hand at the carry trade, be aware that currency values can change in seconds, causing sudden losses. And because currency trading typically involves heavy financial leverage—traders borrow as much as $500 for each dollar they invest to amplify results—the carry trade can rapidly become the scary trade.

That is what happened in the fall of 2008, when traders suddenly rushed to the safety of U.S. dollars during the financial crisis. Those who had sold the dollar and Japanese yen to own higher-yielding currencies quickly piled up big losses as these other currencies sank in value. The losses wiped out several years’ worth of gains in the carry trade.

While amateur traders see the carry trade as a road to riches, “I see it as a way to get broke,” says Amarjit Sahota, chief executive at HiFX Inc., which helps companies and individuals manage currency exposure.

The carry trade is built on the belief that, over time, high-interest rate currencies appreciate against low-rate currencies. These days, one of the most popular trades involves selling, or “shorting,” the low-yielding U.S. dollar and simultaneously buying the high-yielding Australian dollar.

While the big gains and losses come from currency movements, traders also capture daily income based on interest-rate differentials between two countries. Consider a trader who builds a $1 million position in Australian dollars—the equivalent of about $889,000 in U.S. dollars at recent exchange rates. At a 400-to-1 leverage, that trade requires an initial investment of about $2,225.

In effect, the trader borrows at U.S. rates and gets paid at higher Australian rates. Because of the rate differential, he earns $96 a day owning the Australian dollar, and pays about $18 a day selling the U.S. dollar. The daily profit: $78, or $28,500 if he can keep the trade open an entire year.

If only currencies stayed put, it would be easy money. But they don’t. Currencies fluctuate continuously, and trends can reverse quickly. That is particularly true today, notes Brian Dolan, chief currency strategist at online currency-trading firm Forex.com, because pros currently are using the carry trade to play their view on risk. One day institutional investors are feeling frisky and the carry trade is on; the next day they are freaked out and the carry trade is off. Unaware amateurs can get caught in the backwash and lose money quickly.
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Worse is when a currency dives on unexpected news. Losses can pile up before you can close your position. Earlier this year, currency traders sold the greenback to buy Aussie dollars as the Reserve Bank of Australia hiked interest rates, widening Australia’s gap over U.S. rates. Currency traders expected another rate rise when Australia’s central bankers gathered Feb. 2.

Instead, the bankers left rates alone. From one trade to the next, the Aussie dollar fell seven-tenths of a cent—a massive dislocation in currencies. Ultimately, the Aussie dollar lost a full cent overnight.

Our trader with the $1 million Australian stake would have collected his $78 in interest that afternoon. But he would have awoken the next morning to losses of as much as $7,000.

Government regulators hope to protect traders from themselves. The Commodity Futures Trading Commission, which regulates foreign-exchange trading domestically, recently proposed a rule to limit leverage in retail accounts to 10 to 1, concerned that extreme leverage and extreme volatility in currency accounts “can result in a significant loss” on small moves.

There are steps traders can take to lessen risk besides reducing leverage. Don’t risk more than about 5% of your account on a single trade. You need adequate cash reserves to survive the inevitable currency swings without being forced from a position.

And, professional currency traders warn, don’t concentrate your bets against a single currency. If every trade depends on a weak yen, for instance, then one unexpected announcement can spark big losses. Hedge your bets by owning a small, bullish position in the yen or dollar, which will rise when your other positions are crumbling. And always operate with stop-loss orders, designed to get you out of a position at a predetermined price.

The goal is to structure your carry trade so you won’t get carried out the door when things go wrong.