What are they fighting about in Basra?

war stories
Warlord vs. Warlord
What are they fighting about in Basra?
By Fred Kaplan
March 27, 2008
Slate.com

The wars in Iraq (the plural is no typo) are about to expand and possibly explode, so it might be useful to have some notion of what we're in for.

Here is President George W. Bush, speaking this morning in Dayton, Ohio, and revealing once again that he has no notion:

[A]s we speak, Iraqi security forces are waging a tough battle against militia fighters and criminals in Basra—many of whom have received arms and training and funding from Iran. … This offensive builds on the security gains of the surge and demonstrates to the Iraqi people that their government is committed to protecting them. … [T]he enemy will try to fill the TV screens with violence. But the ultimate result will be this: Terrorists and extremists in Iraq will know they have no place in a free and democratic society.

The reality, alas, is less stark. The fighting in Basra, which has spread to parts of Baghdad, is not a clash between good and evil or between a legitimate government and an outlaw insurgency. Rather, as Anthony Cordesman, military analyst for the Washington-based Center for Strategic and International Studies, writes, it is "a power struggle" between rival "Shiite party mafias" for control of the oil-rich south and other Shiite sections of the country.

Both sides in this struggle are essentially militias. Both sides have ties to Iran. And as for protecting "the Iraqi people," the side backed by Prime Minister Nouri al-Maliki (and by U.S. air power) has, ironically, less support—at least in many Shiite areas, including Basra—than the side that he (and we) are attacking.

In other words, as with most things about Iraq, it's a more complex case than Bush makes it out to be.

The two Shiite parties—the Islamic Supreme Council of Iraq and Muqtada Sadr's Mahdi army—have been bitter rivals since the early days of post-Saddam Iraq. And Maliki, from the beginning of his rule, has had delicate relations with both.

Sadr, who may be Iraq's most popular Shiite militant and who controls several seats in parliament, gave Maliki the crucial backing he needed to become prime minister. However, largely under U.S. pressure, Maliki has since backed away from Sadr, who has always fiercely opposed the occupation and whose militiamen have killed many American soldiers (until last year, when he declared a cease-fire).

Maliki has since struck a close alliance with ISCI, which has its own militia, the Badr Organization, and whose members also hold much sway within Iraq's official security forces (though more with the police than with the national army). This alliance has the blessing of U.S. officials, even though ISCI—which was originally called the Supreme Council for the Islamic Revolution in Iraq—has much deeper ties with Iran than Sadr does. (ISCI's leaders went into exile in Iran during the decades of Saddam's reign, while Sadr and his family stayed in Iraq—one reason for his popular support. As Ray Takeyh of the Council on Foreign Relations has noted, SICRI was created by Iran, and the Badr brigades were trained and supplied by Iran's Revolutionary Guard.)

Sadr's Mahdi army and ISCI's Badr Organization came to blows last August in the holy city of Karbala. This fighting—and his growing inability to control criminal elements within the Mahdi army—spurred Sadr to order a six-month moratorium on violence, which he renewed last month, against the wishes of some of his followers. (This moratorium is a major reason for the decline in casualties in Iraq, perhaps as significant as the U.S. troop surge and the Sunni Awakening.)

The fighting this week in Basra may be a prelude to the moratorium's collapse and, with it, the resumption of wide-scale sectarian violence—Shiite vs. Sunni and Shiite vs. Shiite.

Many Shiites believe—not unreasonably—that Maliki ordered the offensive in Basra now in order to destroy Sadr's base of support and thus keep his party from beating ISCI in the upcoming provincial elections.

Late last month, Iraq's three-man presidential council vetoed a bill calling for provincial elections, in large part because ISCI's leaders feared that Sadr's party would win in Basra. The Bush administration, which has (correctly) regarded provincial elections as key to Iraqi reconciliation, pressured Maliki to reverse his stance and let the bill go through. He did—at which point (was this just a coincidence?) planning began for the offensive that's raging now.

Maliki's official reason for the offensive, simply to bring order, has some plausibility, because Basra—Iraq's second-largest city, a major port, and a huge supplier of oil—is teetering on the edge of anarchy. At the start of the occupation, British forces were put in charge of Basra, but they viewed their operation as passive peacekeeping, not counterinsurgency, so militias moved in and gradually took the place over. By the time the British withdrew to the outskirts, the city was already taken over by fractious warlords.

The current fighting in Basra is a struggle for power and resources between those warlords. It's hard to say which faction is more alluring or less likely to fall under Iranian sway. Neither seems the sort of ally in freedom and democracy that our president conjures in his daydreams. (The lively blogger who calls himself Abu Muqawama speculates that Bush officials have embraced ISCI because, unlike Sadr, its leaders speak English.)

It's not a case of good vs. evil. It's just another crevice in the widening earthquake called Iraq.

Fred Kaplan is Slate's "War Stories" columnist and the author of Daydream Believers: How a Few Grand Ideas Wrecked American Power. He can be reached at war_stories@hotmail.com.

Article URL: http://www.slate.com/id/2187564/

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Citigroup 2007 Fees Led Banks

Citigroup '07 Fees Led Banks Heading for Worst Year Since '01
By Lisa Kassenaar
March 3rd, 2008 (Bloomberg)

Five days after UBS AG reported the biggest quarterly loss in banking history on Jan. 30, Rick Leaman packed his black wheeled garment bag, headed to New York's LaGuardia Airport from his Connecticut home and flew off to meet with clients.

``Even if you aren't doing deals, you have to be on the road,'' says Leaman, the Swiss bank's joint global head of investment banking. ``You still have to be in front of clients, generating ideas.''

Leaman and the bankers who work for him led UBS to a company-record $5.54 billion in fees from advising on mergers and acquisitions and underwriting securities in 2007, according to data compiled by Bloomberg. The firm leaped to No. 1 in the world in arranging equity sales.

Yet UBS's investment banking team had little chance to congratulate itself. The unit's contribution was dwarfed by the $18.4 billion UBS wrote down after a disastrous foray into the U.S. subprime mortgage lending market. UBS stock has plunged 34 percent this year to a 52-week low as of Feb. 29.

In trading rooms throughout the U.S. and Europe, the spectacle has been similar: soaring fees amid punishing losses. For the fourth year in a row, securities firms set a record for fees, according to Bloomberg's annual ranking of the 20 best- paid investment banks.

Led again by Citigroup Inc., the banks collected $86.9 billion from advising on M&A and underwriting stocks and bonds. That was a 22 percent increase over 2006's $71 billion and 64 percent more than in 2005.

`Cheap Credit'

``It was an extremely active year,'' says Franck Petitgas, Morgan Stanley's co-head of investment banking. ``Plentiful and cheap credit allowed quick and large transactions.''

The bill for all of that speed and daring started coming due in June, and financial institutions that dipped deepest into mortgage-related debt are still paying. Since the beginning of 2007, banks around the world have written down a total of $181 billion in assets with exposure to subprime mortgages and leveraged loans.

From August to December, the value of announced leveraged buyouts, which pay millions in advisory fees to the biggest financial firms and provide fuel for the debt and equity markets, had plunged 68 percent compared with the same period a year earlier.

``A year ago, everyone thought trees were going to grow to the moon,'' Jamie Dimon, chief executive officer of JPMorgan Chase & Co., said in an interview on Jan. 27 at the World Economic Forum in Davos, Switzerland. ``Obviously, 2007 was a much tougher year than expected, and 2008 is probably going to be the same.''

Out-of-Control Risk

On today's chastened Wall Street, the watchword is risk management. Four of Dimon's colleagues at top investment banks lost their jobs because they let risk get out of hand. UBS CEO Peter Wuffli was the first to go, in July. Then Merrill Lynch & Co.'s Stan O'Neal retired and was replaced by New York Stock Exchange CEO John Thain. Shortly after joining Merrill in December, the former Goldman Sachs Group Inc. president put himself in charge of risk management.

In November, Citigroup CEO Charles Prince was replaced by Vikram Pandit, a former Morgan Stanley president. Pandit says he's considering selling off pieces of the bank, which has $2.18 trillion in assets.

At Bear Stearns Cos., CEO James ``Jimmy'' Cayne ousted Co- President Warren Spector and then, in January, was forced out himself, giving up his CEO job while remaining chairman. Bear Stearns, which ranked No. 19 in the Bloomberg 20 in 2006, fell off the 2007 list after a series of setbacks that in the third quarter saw the company post its steepest profit decline in more than a decade.

`Pockets of Strength'

Pandit and Thain, as well as competitors Lloyd Blankfein at Goldman Sachs, John Mack at Morgan Stanley and JPMorgan Chase's Dimon, will try to bolster fees in 2008 by focusing on traditional pockets of strength in battered markets, says Eric Weber, a managing director at New York-based Freeman & Co., a financial services consulting firm. Among them: restructuring faltering companies and investing in distressed debt, Weber says.

The banks' craving for ever higher fees helped lead them to disaster. They underwrote and invested in billions of dollars of collateralized debt obligations, or CDOs, packages of debt that bundle subprime mortgages, bonds and other loans. The securities, because they carried top ratings and higher yields, earned the banks bigger fees. When rising foreclosures gutted the value of the CDOs, the banks were forced to curtail other lending to hang on to capital.

Recession

Now the banks must struggle to drum up new business in the face of a U.S. economic downturn. The sinking housing market is sending the U.S. economy into recession, according to economists at Goldman Sachs. The Standard & Poor's 500 Index has tumbled 15 percent from its recent peak on Oct. 9.

And the Federal Reserve cut the overnight lending rate five times from September through mid-February, including a surprise 75-basis-point reduction on Jan. 20, in an effort to stimulate economic activity.

``We're all in 'stop, look and listen' mode to sort out 2008,'' UBS's Leaman, 45, says. He says he won't make projections for how his investment banking division will fare this year until the end of the first quarter. Then, he says, he'll have a clearer picture of whether a recession is under way and whether the $168 billion economic stimulus package passed by the U.S. Congress and signed by President George W. Bush in February will bolster the markets.

Pessimism for 2008

If recent history is any guide, Leaman and his peers could be in for a rough ride.

One gauge for how far fees may fall in 2008 is their drop in 2001 from '00, during the investment banking contraction triggered by the Internet bubble's pop. Nine of the top 10 banks in this year's Bloomberg 20 saw M&A fees decline at least 22 percent back in 2001, with Citigroup's fees falling 49 percent, according to Bloomberg data. Equity underwriting fees also declined in 2001 for eight of the top 10 firms, dropping 36 percent at Morgan Stanley and Credit Suisse Group.

This time around, bankers at Bank of America Corp., Lehman Brothers Holdings Inc. and JPMorgan Chase have all predicted that the overall value of M&A in 2008 is likely to fall by at least 20 percent from 2007. That means fees may take a similar tumble, says Roy Smith, a former Goldman Sachs partner who teaches finance at New York University. ``The market is lumbering through a long, painful liquidity situation,'' Smith says. ``Things are going to be moving very slowly for a while.''

Things were moving at warp speed at the start of 2007. In the first half, M&A volume trounced previous records. Companies were raising billions of dollars for ever larger deals.

KKR's Big Deals

In February, Kohlberg Kravis Roberts & Co. and TPG Inc. announced the biggest LBO in history, agreeing to pay $43 billion for Texas power producer TXU Corp. Then a group led by Edinburgh-based Royal Bank of Scotland Group Plc won a bidding war against London-based Barclays Plc and agreed to pay more than $100 billion for ABN Amro Holding NV, the biggest Dutch bank.

The first half of 2007 was Wall Street's busiest six months ever, with $2.4 trillion of announced M&A transactions.

H. Rodgin Cohen, chairman of Sullivan & Cromwell LLP, the No. 1 M&A legal adviser in 2007, according to Bloomberg data, describes the first seven months of 2007 as frantically busy.

``It was extraordinary,'' says Cohen, 63, who says he spent early 2007 pressing Sullivan & Cromwell's partner in charge of hiring for more staff to keep up. ``I had never seen anything with the breadth and depth of that time,'' he says. ``It's hard to imagine much of that coming back without a substantial easing of credit conditions.''

Citi No. 1 Again

Even in a year as eventful as 2007, the pecking order for Wall Street's best-paid investment banks didn't change. For the fourth year in a row, the top five were Citigroup, Goldman Sachs, Morgan Stanley, JPMorgan Chase and Merrill Lynch, all based in New York.

Citigroup brought in $6.88 billion in fees from M&A and securities underwriting, according to Bloomberg data, 19 percent more than the $5.79 billion in 2006. Goldman Sachs was second in total investment banking fees with $6.66 billion, up 18 percent from 2006.

Morgan Stanley, which placed third, recorded an estimated $6.36 billion, up 22 percent from $5.22 billion, Bloomberg numbers show. Rounding out the top five, JPMorgan Chase garnered $6.23 billion, up 33 percent from a year earlier, and Merrill Lynch brought in $5.55 billion, up 23 percent from 2006.

Citigroup held on to No. 1 by reaping more from fixed income than rivals did. Total fees from bond underwriting rose 30 percent to $18.8 billion in the year. Of that, Citigroup captured $1.69 billion, 13 percent more than in 2006.

Fixed Income Gains

JPMorgan Chase was also lifted by fixed income, collecting 49 percent more from underwriting debt than a year earlier, or $1.18 billion. Merrill Lynch placed third in fixed income with $1.16 billion, a 41 percent boost from 2006. Merrill's gains came in part from arranging the most sales of preferred stock, a blend of equity and debt. The company underwrote $13.5 billion of those transactions, generating about $293 million in fees.

Fixed income's stellar season was driven by M&A, especially the surge in private equity buyouts. Leveraged buyouts are typically based on a small amount of cash paid upfront and a host of agreements to raise money from investors. The purchase of Dallas-based TXU, for instance, included debt issues totaling $11.3 billion.

Total M&A fees came in at $42.4 billion, up 21 percent from 2006. Goldman Sachs earned the most for M&A advice for a third consecutive year, Bloomberg data show. The firm brought in $3.93 billion in fees for the year, up 34 percent from 2006. Morgan Stanley was second, with $3.23 billion, a 24 percent jump from 2006, and Citigroup moved to third from fourth, with a 16 percent gain, to $2.9 billion.

Goldman M&A Champ

Goldman Sachs raked in billions by working on the eight biggest M&A deals of the year. The firm, together with Lehman Brothers and Rothschild Bank, represented ABN Amro as a bidding war raged for the Amsterdam-based bank for six months. Goldman Sachs also worked for Rome-based Enel SpA in its $53.3 billion takeover of Spanish power company Endesa SA, which was completed in partnership with Madrid-based Acciona SA. It helped KKR and TPG buy TXU and helped private equity giant Blackstone Group LP scoop up Hilton Hotels Corp.

Goldman Sachs completed a total of 354 deals worth $1.2 trillion, more than any other firm last year. The firm advised on more than 50 M&A agreements of more than $5 billion -- about 40 percent of all mergers and acquisitions announced of that size.

Morgan Stanley was the leading adviser on transactions involving European targets or acquirers. The firm advised on 162 such agreements, generating about $1.5 billion in M&A revenue. Among its deals was Toronto-based Thomson Corp.'s $18.2 billion acquisition of London-based Reuters Group Plc. (Bloomberg LP, the parent of Bloomberg News, competes with Reuters and Thomson in providing financial news and data.)

Private Equity Boom

Citigroup's M&A bankers advised on the four biggest private equity deals, totaling $140 billion. Along with Goldman Sachs, it represented KKR and TPG in their purchase of TXU, now called Energy Future Holdings Corp. The bank was there when a group led by the Ontario Teachers' Pension Plan paid $42.4 billion for Canadian telephone company BCE Inc.

The bank also worked for KKR when it acquired First Data Corp. for $27.5 billion and advised TPG and Goldman Sachs on their $27.1 billion purchase of Alltel Corp. Citigroup's fees for those four deals alone were an estimated $175 million, according to Bloomberg data.

In equity underwriting, UBS leapt to the top of the fee list from fifth place a year earlier. The Swiss bank earned $2.45 billion in fees from stock sales, up 50 percent. UBS worked on the $5.4 billion initial public offering in October of Criteria CaixaCorp, the investment company of Spain's biggest savings bank, and the $5.4 billion stock offering of Electricite de France SA.

Stock Sale Surge

JPMorgan Chase jumped to second in equities from seventh on the strength of equity-linked issues. Those are deals selling securities whose return is determined by the performance of a basket of stocks or a stock index. The firm brought in $2.2 billion in fees from equity underwriting, up 69 percent from $1.3 billion in 2006.

Third place in fees from equity deals went to Citigroup, with $2.16 billion, up 20 percent from $1.8 billion a year earlier. Goldman slipped from first to sixth in fees for arranging stock deals. The firm's take in that area fell 7.3 percent to $1.91 billion from $2.06 billion, according to Bloomberg data.

Fees Less Important

Even when setting records, traditional investment banking fees typically represent less than 20 percent of revenue for the biggest financial firms. At Citigroup, with its huge consumer bank and credit card operation, M&A advice and underwriting accounted for about 8 percent of the bank's $81.7 billion in revenue in 2007.

At Goldman Sachs, whose $11.6 billion in 2007 net income made it the most profitable firm in Wall Street history, investment banking accounted for about 14.5 percent of its $46 billion in revenue.

Those figures understate investment banking's significance to these firms, NYU's Smith says. ``Investment banking has been a bridge to other business,'' he says. It burnishes long-term client relationships, he says, and has provided a steady, growing source of income to the firms since 2003.

For 2008, banks see lucrative opportunities in cleaning up their own tattered industry. As of mid-March, financial companies were among the most active customers in the capital markets. Merrill Lynch generated $205 million in fees, or 18 percent of its total bond fees, from its own deals. About 18 percent of Citigroup's bond deals were to raise capital for itself. ``The financial sector is in capital repair mode,'' Morgan Stanley's Petitgas says.

Microsoft-Yahoo

There's still money to be made in the M&A market -- as Microsoft Corp. made clear with its $44 billion hostile bid to buy Internet pioneer Yahoo! Inc. in February. That same month, Melbourne-based BHP Billiton Ltd., the world's largest mining company, upped its unfriendly bid for London-based Rio Tinto Group Plc, a producer of iron ore, copper, aluminum and energy, to $147 billion from $100 billion.

In January, Chicago-based CME Group Inc., which operates the world's largest futures market, announced it had had discussions about a merger with New York-based Nymex Holdings Inc., owner of the biggest energy market, that would value Nymex at about $11 billion.

Petitgas, whose bank is advising Microsoft on its bid for Yahoo, expects M&A activity to remain robust in 2008. Acquirers, though, may have a harder time financing their takeovers. ``Despite tighter credit conditions, big-event financing is still available,'' Petitgas says.

Looking Overseas

The big banks are also courting more non-U.S. clients and offering advice on crossborder mergers, Freeman's Weber says. Investment banking was more international than ever in 2007. About $31 billion, or 36 percent, of total investment banking fees were from Europe, Bloomberg data show, roughly equal to the $32.8 billion, or 39 percent, in U.S. deals.

M&A transactions in China and Hong Kong increased 38 percent in the year, contributing to $12.6 billion of fees from Asia.

Investment bankers might also find gold in the sovereign wealth funds that the banks have called on to shore up their balance sheets. The funds are government pools of capital accumulated from the sale of oil, gas and, in the case of Asia, consumer goods, to the U.S.

Citigroup collected $7.7 billion early in 2008 from a group led by the Kuwait Investment Authority, $6.8 billion from Government of Singapore Investment Corp. and $7.5 billion from the Abu Dhabi Investment Authority. Merrill Lynch took in more than $10 billion from Korean Investment Corp., Singapore's Temasek Holdings Pte. and Kuwait.

Blinkered Wall Street

The hard times that hit the banking industry could have been forecast as early as February 2007, when late payments on U.S. bank mortgages jumped to their highest level in four years, says Steve Bernard, head of merger analysis at Robert W. Baird & Co. in Chicago. He says Wall Street was blinded by its own euphoria over the flow of deals.

``What started out as a minor concern morphed into a major concern for the entire economy,'' he says. ``When there was speculation about a $100 billion deal, we should have said, 'Wow, things are looking a little excessive.'''

For the rest of this year, Bernard says, many CEOs won't be looking for strategic investments unless the stock market gathers strength and they're confident the economy is improving. Many corporate acquisitions are partially paid for with stock, a currency that's lost some of its heft since August.

Profit, Stock Swoon

``The outlook for sales affects CEOs' level of confidence,'' Bernard says. ``They don't want to buy something when their profits are falling, and now they have a less valuable currency, too.''

For UBS's Leaman, the company's role as the leading equity underwriter may provide a cushion in a rough year. Selling stock will be a better prospect for banks than advising on M&A, if the last economic downturn is any guide.

``It will still take a lot of time to clean up what happened,'' Leaman says. ``My guess is that I will be on a plane a fair amount this year.''

The Chicken Doves

The Chicken Doves
Elected to end the war, Democrats have surrendered to Bush on Iraq and betrayed the peace movement for their own political ends
MATT TAIBBI

issue: Feb 21, 2008
Rolling Stone

Quietly, while Hillary Clinton and Barack Obama have been inspiring Democrats everywhere with their rolling bitchfest, congressional superduo Harry Reid and Nancy Pelosi have completed one of the most awesome political collapses since Neville Chamberlain. At long last, the Democratic leaders of Congress have publicly surrendered on the Iraq War, just one year after being swept into power with a firm mandate to end it.

Solidifying his reputation as one of the biggest pussies in U.S. political history, Reid explained his decision to refocus his party's energies on topics other than ending the war by saying he just couldn't fit Iraq into his busy schedule. "We have the presidential election," Reid said recently. "Our time is really squeezed."

There was much public shedding of tears among the Democratic leadership, as Reid, Pelosi and other congressional heavyweights expressed deep sadness that their valiant charge up the hill of change had been thwarted by circumstances beyond their control — that, as much as they would love to continue trying to end the catastrophic Iraq deal, they would now have to wait until, oh, 2009 to try again. "We'll have a new president," said Pelosi. "And I do think at that time we'll take a fresh look at it."

Pelosi seemed especially broken up about having to surrender on Iraq, sounding like an NFL coach in a postgame presser, trying with a straight face to explain why he punted on first-and-goal. "We just didn't have any plays we liked down there," said the coach of the 0-15 Dems. "Sometimes you just have to play the field-position game...."

In reality, though, Pelosi and the Democrats were actually engaged in some serious point-shaving. Working behind the scenes, the Democrats have systematically taken over the anti-war movement, packing the nation's leading group with party consultants more interested in attacking the GOP than ending the war. "Our focus is on the Republicans," one Democratic apparatchik in charge of the anti-war coalition declared. "How can we juice up attacks on them?"

The story of how the Democrats finally betrayed the voters who handed them both houses of Congress a year ago is a depressing preview of what's to come if they win the White House. And if we don't pay attention to this sorry tale now, while there's still time to change our minds about whom to nominate, we might be stuck with this same bunch of spineless creeps for four more years. With no one but ourselves to blame.

The controversy over the Democratic "strategy" to end the war basically comes down to whom you believe. According to the Reid-Pelosi version of history, the Democrats tried hard to force President Bush's hand by repeatedly attempting to tie funding for the war to a scheduled withdrawal. Last spring they tried to get him to eat a timeline and failed to get the votes to override a presidential veto. Then they retreated and gave Bush his money, with the aim of trying again after the summer to convince a sufficient number of Republicans to cross the aisle in support of a timeline.

But in September, Gen. David Petraeus reported that Bush's "surge" in Iraq was working, giving Republicans who might otherwise have flipped sufficient cover to continue supporting the war. The Democrats had no choice, the legend goes, but to wait until 2009, in the hopes that things would be different under a Democratic president.

Democrats insist that the reason they can't cut off the money for the war, despite their majority in both houses, is purely political. "George Bush would be on TV every five minutes saying that the Democrats betrayed the troops," says Sen. Bernie Sanders of Vermont. Then he glumly adds another reason. "Also, it just wasn't going to happen."

Why it "just wasn't going to happen" is the controversy. In and around the halls of Congress, the notion that the Democrats made a sincere effort to end the war meets with, at best, derisive laughter. Though few congressional aides would think of saying so on the record, in private many dismiss their party's lame anti-war effort as an absurd dog-and-pony show, a calculated attempt to score political points without ever being serious about bringing the troops home.

"Yeah, the amount of expletives that flew in our office alone was unbelievable," says an aide to one staunchly anti-war House member. "It was all about the public show. Reid and Pelosi would say they were taking this tough stand against Bush, but if you actually looked at what they were sending to a vote, it was like Swiss cheese. Full of holes."

In the House, some seventy Democrats joined the Out of Iraq caucus and repeatedly butted heads with Reid and Pelosi, arguing passionately for tougher measures to end the war. The fight left some caucus members bitter about the party's failure. Rep. Barbara Lee of California was one of the first to submit an amendment to cut off funding unless it was tied to an immediate withdrawal. "I couldn't even get it through the Rules Committee in the spring," Lee says.

Rep. Lynn Woolsey, a fellow caucus member, says Democrats should have refused from the beginning to approve any funding that wasn't tied to a withdrawal. "If we'd been bold the minute we got control of the House — and that's why we got the majority, because the people of this country wanted us out of Iraq — if we'd been bold, even if we lost the votes, we would have gained our voice."

An honest attempt to end the war, say Democrats like Woolsey and Lee, would have involved forcing Bush to execute his veto and allowing the Republicans to filibuster all they wanted. Force a showdown, in other words, and use any means necessary to get the bloodshed ended.

"Can you imagine Tom DeLay and Denny Hastert taking no for an answer the way Reid and Pelosi did on Iraq?" asks the House aide in the expletive-filled office. "They'd find a way to get the votes. They'd get it done somehow."

But any suggestion that the Democrats had an obligation to fight this good fight infuriates the bund of hedging careerists in charge of the party. In fact, nothing sums up the current Democratic leadership better than its vitriolic criticisms of those recalcitrant party members who insist on interpreting their 2006 mandate as a command to actually end the war. Rep. David Obey, chair of the House Appropriations Committee and a key Pelosi-Reid ally, lambasted anti-war Democrats who "didn't want to get specks on those white robes of theirs." Obey even berated a soldier's mother who begged him to cut off funds for the war, accusing her and her friends of "smoking something illegal."

Rather than use the vast power they had to end the war, Democrats devoted their energy to making sure that "anti-war activism" became synonymous with "electing Democrats." Capitalizing on America's desire to end the war, they hijacked the anti-war movement itself, filling the ranks of peace groups with loyal party hacks. Anti-war organizations essentially became a political tool for the Democrats — one operated from inside the Beltway and devoted primarily to targeting Republicans.

This supposedly grass-roots "anti-war coalition" met regularly on K Street, the very capital of top-down Beltway politics. At the forefront of the groups are Thomas Matzzie and Brad Woodhouse of Americans Against the Escalation in Iraq, the leader of the anti-war lobby. Along with other K Street crusaders, the two have received iconic treatment from The Washington Post and The New York Times, both of which depicted the anti-war warriors as young idealist-progressives in shirtsleeves, riding a mirthful spirit into political combat — changing the world is fun!

But what exactly are these young idealists campaigning for? At its most recent meeting, the group eerily echoed the Reid-Pelosi "squeezed for time" mantra: Retreat from any attempt to end the war and focus on electing Democrats. "There was a lot of agreement that we can draw distinctions between anti-war Democrats and pro-war Republicans," a spokeswoman for Americans Against the Escalation in Iraq announced.

What the Post and the Times failed to note is that much of the anti-war group's leadership hails from a consulting firm called Hildebrand Tewes — whose partners, Steve Hildebrand and Paul Tewes, served as staffers for the Democratic Senatorial Campaign Committee (DSCC). In addition, these anti-war leaders continue to consult for many of the same U.S. senators whom they need to pressure in order to end the war. This is the kind of conflict of interest that would normally be an embarrassment in the activist community.

Worst of all is the case of Woodhouse, who came to Hildebrand Tewes after years of working as the chief mouthpiece for the DSCC, where he campaigned actively to re-elect Democratic senators who supported the Iraq War in the first place. Anyone bothering to look — and clearly the Post and the Times did not before penning their ardent bios of Woodhouse — would have found the youthful idealist bragging to newspapers before the Iraq invasion about the pro-war credentials of North Carolina candidate Erskine Bowles. "No one has been stronger in this race in supporting President Bush in the War on Terror and his efforts to effect a regime change in Iraq," boasted the future "anti-war" activist Woodhouse.

With guys like this in charge of the anti-war movement, much of what has passed for peace activism in the past year was little more than a thinly veiled scheme to use popular discontent over the war to unseat vulnerable Republicans up for re-election in 2008. David Sirota, a former congressional staffer whose new book, The Uprising, excoriates the Democrats for their failure to end the war, expresses disgust at the strategy of targeting only Republicans. "The whole idea is based on this insane fiction that there is no such thing as a pro-war Democrat," he says. "Their strategy allows Democrats to take credit for being against the war without doing anything to stop it. It's crazy."

Justin Raimondo, the uncompromising editorial director of Antiwar.com, regrets contributing twenty dollars to Americans Against the Escalation in Iraq. "Not only did they use it to target Republicans," he says, "they went after the ones who were on the fence about Iraq." The most notorious case involved Lincoln Chafee, a moderate from Rhode Island who lost his Senate seat in 2006. Since then, Chafee has taken shots at Democrats like Reid, Hillary Clinton and Chuck Schumer, all of whom campaigned against him despite having voted for the war themselves.

"Look, I understand partisan politics," says Chafee, who now concedes that voters were correct to punish him for his war vote. "I just find it amusing that those who helped get us into this mess now say we need to change the Senate — because we're in a mess."

The really tragic thing about the Democratic surrender on Iraq is that it's now all but guaranteed that the war will be off the table during the presidential campaign. Once again — it happened in 2002, 2004 and 2006 — the Democrats have essentially decided to rely on the voters to give them credit for being anti-war, despite the fact that, for all the noise they've made to the contrary, in the end they've done nothing but vote for war and cough up every dime they've been asked to give, every step of the way.

Even beyond the war, the Democrats have repeatedly gone limp-dick every time the Bush administration so much as raises its voice. Most recently, twelve Democrats crossed the aisle to grant immunity to phone companies who participated in Bush's notorious wiretapping program. Before that, Democrats caved in and confirmed Mike Mukasey as attorney general after he kept his middle finger extended and refused to condemn waterboarding as torture. Democrats fattened by Wall Street also got cold feet about upsetting the country's gazillionaires, refusing to close a tax loophole that rewarded hedge-fund managers with a tax rate less than half that paid by ordinary citizens.

But the war is where they showed their real mettle. Before the 2006 elections, Democrats told us we could expect more specifics on their war plans after Election Day. Nearly two years have passed since then, and now they are once again telling us to wait until after an election to see real action to stop the war. In the meantime, of course, we're to remember that they're the good guys, the Republicans are the real enemy, and, well, go Hillary! Semper fi! Yay, team!

How much of this bullshit are we going to take? How long are we supposed to give the Reids and Pelosis and Hillarys of the world credit for wanting, deep down in their moldy hearts, to do the right thing?

Look, fuck your hearts, OK? Just get it done. Because if you don't, sooner or later this con is going to run dry. It may not be in '08, but it'll be soon. Even Americans can't be fooled forever.

Surge to Nowhere

Surge to Nowhere
Don't buy the hawks' hype. The war may be off the front pages, but Iraq is broken beyond repair, and we still own it.

By Andrew J. Bacevich
January 20, 2008
WashingtonPost.com

As the fifth anniversary of Operation Iraqi Freedom nears, the fabulists are again trying to weave their own version of the war. The latest myth is that the "surge" is working.

In President Bush's pithy formulation, the United States is now "kicking ass" in Iraq. The gallant Gen. David Petraeus, having been given the right tools, has performed miracles, redeeming a situation that once appeared hopeless. Sen. John McCain has gone so far as to declare that "we are winning in Iraq." While few others express themselves quite so categorically, McCain's remark captures the essence of the emerging story line: Events have (yet again) reached a turning point. There, at the far end of the tunnel, light flickers. Despite the hand-wringing of the defeatists and naysayers, victory beckons.

From the hallowed halls of the American Enterprise Institute waft facile assurances that all will come out well. AEI's Reuel Marc Gerecht assures us that the moment to acknowledge "democracy's success in Iraq" has arrived. To his colleague Michael Ledeen, the explanation for the turnaround couldn't be clearer: "We were the stronger horse, and the Iraqis recognized it." In an essay entitled "Mission Accomplished" that is being touted by the AEI crowd, Bartle Bull, the foreign editor of the British magazine Prospect, instructs us that "Iraq's biggest questions have been resolved." Violence there "has ceased being political." As a result, whatever mayhem still lingers is "no longer nearly as important as it was." Meanwhile, Frederick W. Kagan, an AEI resident scholar and the arch-advocate of the surge, announces that the "credibility of the prophets of doom" has reached "a low ebb."

Presumably Kagan and his comrades would have us believe that recent events vindicate the prophets who in 2002-03 were promoting preventive war as a key instrument of U.S. policy. By shifting the conversation to tactics, they seek to divert attention from flagrant failures of basic strategy. Yet what exactly has the surge wrought? In substantive terms, the answer is: not much.

As the violence in Baghdad and Anbar province abates, the political and economic dysfunction enveloping Iraq has become all the more apparent. The recent agreement to rehabilitate some former Baathists notwithstand ing, signs of lasting Sunni-Shiite reconciliation are scant. The United States has acquired a ramshackle, ungovernable and unresponsive dependency that is incapable of securing its own borders or managing its own affairs. More than three years after then-national security adviser Condoleezza Rice handed President Bush a note announcing that "Iraq is sovereign," that sovereignty remains a fiction.

A nation-building project launched in the confident expectation that the United States would repeat in Iraq the successes it had achieved in Germany and Japan after 1945 instead compares unfavorably with the U.S. response to Hurricane Katrina. Even today, Iraqi electrical generation meets barely half the daily national requirements. Baghdad households now receive power an average of 12 hours each day -- six hours fewer than when Saddam Hussein ruled. Oil production still has not returned to pre-invasion levels. Reports of widespread fraud, waste and sheer ineptitude in the administration of U.S. aid have become so commonplace that they barely last a news cycle. (Recall, for example, the 110,000 AK-47s, 80,000 pistols, 135,000 items of body armor and 115,000 helmets intended for Iraqi security forces that, according to the Government Accountability Office, the Pentagon cannot account for.) U.S. officials repeatedly complain, to little avail, about the paralyzing squabbling inside the Iraqi parliament and the rampant corruption within Iraqi ministries. If a primary function of government is to provide services, then the government of Iraq can hardly be said to exist.

Moreover, recent evidence suggests that the United States is tacitly abandoning its efforts to create a truly functional government in Baghdad. By offering arms and bribes to Sunni insurgents -- an initiative that has been far more important to the temporary reduction in the level of violence than the influx of additional American troops -- U.S. forces have affirmed the fundamental irrelevance of the political apparatus bunkered inside the Green Zone.

Rather than fostering political reconciliation, accommodating Sunni tribal leaders ratifies the ethnic cleansing that resulted from the civil war touched off by the February 2006 bombing of the Golden Mosque in Samarra, a Shiite shrine. That conflict has shredded the fragile connective tissue linking the various elements of Iraqi society; the deals being cut with insurgent factions serve only to ratify that dismal outcome. First Sgt. Richard Meiers of the Army's 3rd Infantry Division got it exactly right: "We're paying them not to blow us up. It looks good right now, but what happens when the money stops?"

In short, the surge has done nothing to overturn former secretary of state Colin Powell's now-famous "Pottery Barn" rule: Iraq is irretrievably broken, and we own it. To say that any amount of "kicking ass" will make Iraq whole once again is pure fantasy. The U.S. dilemma remains unchanged: continue to pour lives and money into Iraq with no end in sight, or cut our losses and deal with the consequences of failure.

In only one respect has the surge achieved undeniable success: It has ensured that U.S. troops won't be coming home anytime soon. This was one of the main points of the exercise in the first place. As AEI military analyst Thomas Donnelly has acknowledged with admirable candor, "part of the purpose of the surge was to redefine the Washington narrative," thereby deflecting calls for a complete withdrawal of U.S. combat forces. Hawks who had pooh-poohed the risks of invasion now portrayed the risks of withdrawal as too awful to contemplate. But a prerequisite to perpetuating the war -- and leaving it to the next president -- was to get Iraq off the front pages and out of the nightly news. At least in this context, the surge qualifies as a masterstroke. From his new perch as a New York Times columnist, William Kristol has worried that feckless politicians just might "snatch defeat out of the jaws of victory." Not to worry: The "victory" gained in recent months all but guarantees that the United States will remain caught in the jaws of Iraq for the foreseeable future.

Such success comes at a cost. U.S. casualties in Iraq have recently declined. Yet since Petraeus famously testified before Congress last September, Iraqi insurgents have still managed to kill more than 100 Americans. Meanwhile, to fund the war, the Pentagon is burning through somewhere between $2 billion and $3 billion per week. Given that further changes in U.S. policy are unlikely between now and the time that the next administration can take office and get its bearings, the lavish expenditure of American lives and treasure is almost certain to continue indefinitely.

But how exactly do these sacrifices serve the national interest? What has the loss of nearly 4,000 U.S. troops and the commitment of about $1 trillion -- with more to come -- actually gained the United States?

Bush had once counted on the U.S. invasion of Iraq to pay massive dividends. Iraq was central to his administration's game plan for eliminating jihadist terrorism. It would demonstrate how U.S. power and beneficence could transform the Muslim world. Just months after the fall of Baghdad, the president declared, "The establishment of a free Iraq at the heart of the Middle East will be a watershed event in the global democratic revolution." Democracy's triumph in Baghdad, he announced, "will send forth the news, from Damascus to Tehran -- that freedom can be the future of every nation." In short, the administration saw Baghdad not as a final destination but as a way station en route to even greater successes.

In reality, the war's effects are precisely the inverse of those that Bush and his lieutenants expected. Baghdad has become a strategic cul-de-sac. Only the truly blinkered will imagine at this late date that Iraq has shown the United States to be the "stronger horse." In fact, the war has revealed the very real limits of U.S. power. And for good measure, it has boosted anti-Americanism to record levels, recruited untold numbers of new jihadists, enhanced the standing of adversaries such as Iran and diverted resources and attention from Afghanistan, a theater of war far more directly relevant to the threat posed by al-Qaeda. Instead of draining the jihadist swamp, the Iraq war is continuously replenishing it.

Look beyond the spin, the wishful thinking, the intellectual bullying and the myth-making. The real legacy of the surge is that it will enable Bush to bequeath the Iraq war to his successor -- no doubt cause for celebration at AEI, although perhaps less so for the families of U.S. troops. Yet the stubborn insistence that the war must continue also ensures that Bush's successor will, upon taking office, discover that the post-9/11 United States is strategically adrift. Washington no longer has a coherent approach to dealing with Islamic radicalism. Certainly, the next president will not find in Iraq a useful template to be applied in Iran or Syria or Pakistan.

According to the war's most fervent proponents, Bush's critics have become so "invested in defeat" that they cannot see the progress being made on the ground. Yet something similar might be said of those who remain so passionately invested in a futile war's perpetuation. They are unable to see that, surge or no surge, the Iraq war remains an egregious strategic blunder that persistence will only compound.

Andrew J. Bacevich is a professor of history and international relations at Boston University. His new book, "The Limits of Power," will be published later this year.

Citigroup SIV Debt Ratings

Moody's Says Citigroup SIV Debt Ratings Under Threat
By Shannon D. Harrington
Nov. 30 (Bloomberg)

Moody's Investors Service said $64.9 billion of debt sold by Citigroup Inc.'s structured investment vehicles was cut or placed on review for a downgrade as part of a review of $130 billion of SIV debt.

The ratings company surveyed 20 SIVs since Nov. 7 and expanded its review after noticing ``significant additional deterioration'' in asset values, according to a statement today. Links Finance Corp., a SIV sponsored by Bank of Montreal with $19.1 billion of debt, may have its ratings cut, Moody's said.

SIVs, which sell short-term debt to buy longer-term, higher- yielding assets, were shut out of the short-term market as losses on subprime mortgage securities prompted investors to retreat from all but the safest of securities. Unable to finance themselves, three SIVs have defaulted and others are being bailed out by their sponsors. The world's 30 SIVs have more than $300 billion of assets.

``In recent weeks, Moody's has observed material declines in market value across most asset classes in SIV portfolios,'' the ratings company said in the statement.

Moody's cut at least $10 billion in debt in all, mostly capital notes that rank below commercial paper and medium-term notes and are usually the first to absorb losses, Henry Tabe, managing director in charge of structured finance, said in a telephone interview. The ratings company placed at least $100 billion of debt on review for a downgrade and confirmed the ratings on $11 billion, Tabe said.

`Continued Deterioration'

SIV assets on average are 38 percent financial institution debt, 16 percent asset-backed securities and 12 percent collateralized debt obligations, Moody's said.

The downgrades are ``a reflection of the continued deterioration in market value of SIV portfolios combined with the sector's inability to refinance maturing liabilities,'' Moody's said.

Citigroup, the largest U.S. bank by assets, provided $7.6 billion of emergency financing to the seven SIVs it runs earlier this month after they were unable to repay maturing debt.

Citigroup, based in New York, created the first SIV in 1988 and is the largest manager.

The SIVs' struggle for survival, and the threat of having their assets dumped on the market, prompted Treasury Secretary Henry Paulson to broker talks with Citigroup, JPMorgan Chase & Co. and Bank of America Corp. to form an $80 billion fund to help bail them out.

HSBC Holdings Plc of London this week said it will take on $45 billion of assets from the two SIVs it manages after they were unable to finance themselves. SIVs set up by Dusseldorf- based lender IKB Deutsche Industriebank AG and London-based Cheyne Capital Management Ltd. defaulted last month after investors stopped buying their asset-backed commercial paper.

Centauri, Beta

Centauri Corp., the largest SIV run by Citigroup with $16.9 billion of debt, had its P1 commercial paper rating placed on review for downgrade as well as its AAA medium-term note program, Moody's said. Centauri's net asset value dropped to 60 percent from 85 percent since Sept. 5, Moody's said.

Beta Finance Corp., the second-largest Citigroup SIV with $16 billion of debt, had its senior debt ratings placed on review for downgrade after its net asset value declined to 60 percent from 87 percent, Moody's said.

Sedna, Dorada

Four other Citigroup SIVs, Sedna Finance Corp., with $10.7 billion of debt, Five Finance Corp., with $10.3 billion, Dorada Corp. with $8.5 billion, and Zela Finance Corp., with $2.5 billion, had their P1 commercial paper rating and AAA medium-term note programs placed on review, Moody's said.

Sedna's net asset value dropped to 56 percent, Five's declined to 63 percent, Dorada dropped to 62 percent and Zela's fell to 61 percent. A seventh Citigroup SIV, Vetra Finance Corp., wasn't part of the review.

Dorada's capital note program was reduced to Caa3 from Baa1.

Orion Finance Corp., a SIV managed by Eiger Capital with $835 million of debt, had its P1 commercial paper ratings downgraded to Not Prime, and its AAA medium-term note program to Baa3. Orion's net asset value dropped to 54 percent from 61 percent since Sept. 5, Moody's said.

Links Finance's net asset value declined to 78 percent from 94 percent since a Sept. 5 review, Moody's said. The SIV's AAA ratings may be cut after a review that will be completed within a week, Moody's said. Links' standard capital notes were cut 11 levels to the fourth-lowest ranking.

Toronto-based Bank of Montreal spokesman Ralph Marranca didn't immediately return a call seeking comment.

Mission Accomplished

Mission Accomplished - Prospect October 2007

With most Sunni factions now seeking a deal, the big questions in Iraq have been resolved positively. The country remains one, it has embraced democracy and avoided all-out civil war. What violence remains is largely local and criminal

Bartle Bull

The question of what to do in Iraq today must be separated from the decision to topple Saddam Hussein four and a half years ago. That decision is a matter for historians. By any normal ethical standard, the coalition's current project in Iraq is a just one. Britain, America and Iraq's other allies are there as the guests of an elected government given a huge mandate by Iraqi voters under a legitimate constitution. The UN approved the coalition's role in May 2003, and the mandate has been renewed annually since then, most recently this August. Meanwhile, the other side in this war are among the worst people in global politics: Baathists, the Nazis of the middle east; Sunni fundamentalists, the chief opponents of progress in Islam's struggle with modernity; and the government of Iran. Ethically, causes do not come much clearer than this one.

Some just wars, however, are not worth fighting. There are countries that do not matter very much to the rest of the world. Rwanda is one tragic example; and its case illustrates the immorality of a completely pragmatic foreign policy. But Iraq, the world's axial country since the beginning of history and all the more important in the current era for probably possessing the world's largest reserves of oil, is no Rwanda. Nor do two or three improvised explosive devices a day, for all the personal tragedy involved in each casualty, make a Vietnam.

The great question in deciding whether to keep fighting in Iraq is not about the morality and self-interest of supporting a struggling democracy that is also one of the most important countries in the world. The question is whether the war is winnable and whether we can help the winning of it. The answer is made much easier by the fact that three and a half years after the start of the insurgency, most of the big questions in Iraq have been resolved. Moreover, they have been resolved in ways that are mostly towards the positive end of the range of outcomes imagined at the start of the project. The country is whole. It has embraced the ballot box. It has created a fair and popular constitution. It has avoided all-out civil war. It has not been taken over by Iran. It has put an end to Kurdish and marsh Arab genocide, and anti-Shia apartheid. It has rejected mass revenge against the Sunnis. As shown in the great national votes of 2005 and the noisy celebrations of the Iraq football team's success in July, Iraq survived the Saddam Hussein era with a sense of national unity; even the Kurds—whose reluctant commitment to autonomy rather than full independence is in no danger of changing—celebrated. Iraq's condition has not caused a sectarian apocalypse across the region. The country has ceased to be a threat to the world or its region. The only neighbours threatened by its status today are the leaders in Damascus, Riyadh and Tehran.

The mission in Iraq may be on the way to being accomplished, but it has clearly been imperfect and costly. At least 80,000 and perhaps 200,000 or more Iraqis have been killed since the invasion, almost all of them by Iraqis and other Arabs (although this should be weighed against the 1.5m people killed by war and political violence during the 35-year Baath reign). The Sunni insurgency has degraded the country's utilities infrastructure, with the result that services remain patchy in much of the country and very bad in Baghdad: from April to June 2007, Iraq as a whole averaged 12.8 hours of electricity per day, while Baghdad averaged just 9.2. Oil production is down by 20 per cent since the invasion. Many of the country's professionals—doctors, teachers, academics—have left. There has been much local sectarian cleansing, with around 1m people internally displaced since 2003 and up to another 1m externally displaced. The US-led coalition has lost almost 4,100 lives, with many more wounded. Much money has been stolen, and some of Iraq's priceless historical legacy looted. In parts of the country, local disorder has opened opportunities to criminals and fundamentalists. Much of the police force is militantly Shia, and many units are loyal to militias. Although General Petraeus's military "surge" has had some success in reducing violence, Iraqis are still dying violently at an alarming rate—around 1,500 a month.

Understanding this expensive victory is a matter of understanding the remaining violence. Now that Iraq's big questions have been resolved—break-up? No. Shia victory? Yes. Will violence make the Americans go home? No. Do Iraqis like voting? Yes. Do they like Iraq? Yes—Iraq's violence has largely become local and criminal. The biggest fact about Iraq today is that the violence, while tragic, has ceased being political, and is therefore no longer nearly as important as it was.

Some of the violence—that paid for by foreigners or motivated by Islam's crazed fringes—will not recede in a hurry. Iraq has a lot of Islam and long, soft borders. But the rest of Iraq's violence is local: factionalism, revenge cycles, crime, power plays. It will largely cease once Iraq has had a few more years to build up its security apparatus.

There have been four main sources of political violence in Iraq since the invasion. The "insurgency," which means the Sunni violence, comprised three of these four elements: Baathists, Sunni religious fundamentalists (whom we will call Wahhabis after the most important of their closely related strains), and Sunni tribes. (The fourth source of violence is Shia, about which more later.) Baathism, modelled from its birth in the 1940s on German national socialism, is a secular movement. Wahhabism, fighting for a return to the pure days of Islam in the 7th century, is the opposite. It was clear from the beginning that these two tendencies, which today are fighting each other in much of Sunni Iraq, would not get along forever.

Equally clear was that neither could win in their battle for Iraq. The Baathists wanted a return to the privileges they enjoyed under Saddam. The Wahhabis wanted a return to the days of the prophet. Neither was going to happen; for the 85 per cent of the country that is not Sunni Arab, these forms of Sunni Arab totalitarianism were the ultimate non-starter. Sunni power was broken by the invasion: Iraq, finally recognising a group three times as numerous as the Sunnis, had become a Shia country; Baghdad, the dowager capital of Islam, is today a Shia city for the first time since 1534.

All this was foreseen in the first phase of the violence, from the insurgency's start in spring 2004 until the Samarra mosque bombing in February 2006. The Baathists, thugs but rational actors, would eventually give up and sit down to bargain for as much as they could get from the mess they had made. And the Wahhabis, answering to a higher power and mostly foreigners anyway, would keep blowing themselves up. All sides acknowledge that this is what is happening today: the Wahhabis continue to cross the border in search of their 72 virgins in paradise, and the Baathists are negotiating with the Shias and the Americans to come inside the tent.

A third element of the Sunni violence was tribal. This was particularly prevalent in Anbar province in western Iraq, where Sunni tribes have traditionally prospered from banditry on the Damascus road and where even Saddam was not fully in control. Fighting outsiders is an old habit in Iraq's Sunni bandit country. So is making money. Thus the Sunni tribes, like the Baathists, have done precisely what non-ideological observers predicted at the beginning of the violence. Once the victory of the Shias and the resolve of the US administration became clear, the Sunni tribes decided their interest lay in milking what they could from the new dispensation. Thus it is that Anbar today is one of the safer places in Iraq. (Until the pacification of Anbar, about 80 per cent of Iraq's violence happened in four of its 18 provinces: Anbar, Salah ad Din, Nineveh and Baghdad. In nine of the 18 provinces, there is basically no violence.) The importance of the achievement in Anbar cannot be overemphasised: pacifying the heartland of the Sunni insurgency was considered unachievable as recently as this spring. (The assassination in September of Abu Risha—head of the "Anbar Awakening," an organisation of 25 Sunni tribes fighting al Qaeda in Anbar—while unfortunate, will not be material.)

It was always clear that Iraq's Sunni tribes would eventually take up arms against the Saudis, Jordanians and Syrians in their midst who were banning smoking, killing whisky vendors, executing sheikhs of ancient tribes and forcibly marrying local girls to "emirs" of the soi-disant "Islamic state of Iraq." Of course, Anbar's tribal leaders and Baathists could be bought off either directly or by the indirect promise of owning a chunk of what will be a very rich country now that the basic question of who owns Baghdad has been resolved. At least 14,000 Anbari young men have joined the state security services since the surge began in February and the Iraqi prime minister, Nouri al-Maliki, started reaching out to the chiefs.

The tribes and the Baathists also noticed what happened in Fallujah and Ramadi: when those cities ran out of control, America doubled up. In November 2004, the marines surrounded Fallujah, killed every insurgent (and plenty of civilians), started rebuilding the place and left an effective security cordon around it. Ramadi, on a smaller scale, was next. Now the insurgency has decamped to other provinces, where it does not want to be. Beating them there will be even easier, as is proving to be the case in Diyala.

The Sunni insurgents have recognised that there is little point fighting a strong and increasingly skilled enemy—the US—that is on the right side of Iraq's historical destiny and has a political leadership that—unlike that of the British in Basra—responds to setbacks by trying harder. (That is essentially the Petraeus doctrine: more resources more intelligently applied further forward.) There is even less point doing so when you are a discredited minority, as the Sunnis are after 35 years of Baathism followed by their disastrous insurgency, and the enemy is in fact your main guarantor of a fair place at the national table.

Iraq's Sunnis would not be needing the help of the US today had the Sunni leadership not made a historic miscalculation back in 2004. Saddam, a rational man, made an understandable but fatal misjudgement about the people he was up against, and paid for it with his throne and his neck. His Sunni supporters did not learn from this. Thinking they were dealing with the post-Vietnam America of Carter, Reagan and Clinton, they took up arms to prevent the Americans from delivering on their promise of an Iraq that could freely choose its leaders. The habit of centuries of overlordship also fed the Sunni miscalculation: to them, Shia control was unthinkable and so the insurgency was sure to succeed.

By the second half of 2004, the insurgency had had six months to show what it was capable of, and it became clear that its goal could not be the military defeat of the Americans. The Sunnis were now fighting not for a military victory but a political one, to win in the US congress and the newsrooms of CNN and the New York Times the war they could not win in the alleys and date palm groves of Mesopotamia.

With regard to violence against their fellow Iraqis, the Sunni strategy revealed itself quickly to be an effort to provoke the Shias into full-fledged communal violence and civil war. Such a conflagration would be so hot that even Bush's Americans would run for home. The key moment in this strategy was the bombing of the Shia mosque in Samarra. Until then, the Shias had shown great restraint at the stream of Sunni provocations. Shia cells targeted Wahhabis and Baathists, but mostly left the Sunni populace alone. Under the steadying influence of Grand Ayatollah Ali al-Sistani, their religious leader, the Shias endured mass slaughters in markets, buses and schools throughout 2004, 2005 and early 2006 without large-scale retaliation. As the main beneficiaries from the new Iraq, the Shias could only lose from a prolonged civil war.

The Samarra bombing seemed briefly to be the final straw. The Shia death squads, most associated with the young cleric Muqtada al-Sadr and his Mahdi army, long chafing under Sistani's restraining hand, were let slip. Neighbourhood cleansing began in much of Baghdad and went on for a year until Petraeus's surge began in February. It continues in many places where his troops are not present.

The world held its breath after Samarra: here, we thought, comes the cataclysm, the civil war that many had feared and that others had sought for three years. But it never happened. The Shia backlash in parts of Baghdad was vicious, and the Sunnis were more or less kicked out of much of the city. But over 18 months later, it is clear that the Shias were too sensible to go all the way. It was never a civil war: no battle lines or uniforms, no secession, no attempt to seize power or impose constitutional change, no parallel governments, not even any public leaders or aims. The Sunnis rolled the dice, launched the battle of Baghdad and lost. Now they are begging for an accommodation with Shia Iraq.

What is the evidence for this? This summer, Maliki's office reached out to Baathist ex-soldiers and officers and received 48,600 requests for jobs in uniform; he made room for 5,000 of them, found civil service jobs for another 7,000, and put the rest of them on a full pension. Meanwhile leading Baathists have told Time magazine they want to be in the government; the 1920 Revolution Brigade—a Sunni insurgent group—is reportedly patrolling the streets of Diyala with the 3rd infantry division, and the Sunni Islamic Army in Iraq is telling al Jazeera it may negotiate with the Americans. The anecdotes coming out of Baghdad confirm the trend. The drawing rooms of the capital's dealmakers are full of Baathists, cap in hand. They are terrified of the Shia death squads and want to share in the pie when the oil starts flowing. Both Izzat al-Douri, the more prestigious of the two main Baathist leaders, and Mohamed Younis al Ahmed, the more lethal, have been reaching out from neighbouring countries to negotiate an accommodation. Since the summer, the news coming out on the Sunni front has consistently been in this one, inevitable direction.

The Shia story was different. There have been two broad tendencies in Iraq's Shia politics: the pro-Iranian camp and the nationalist camp. Iraq has two great traditional pro-Iranian Shia parties—Nouri al-Maliki's Dawa party and the Supreme Iraqi Islamic Council (the former SCIRI). They fought Saddam from exile and spent the wilderness years in Iran. Opposed to these two is the al-Sadr movement, which—under Muqtada al-Sadr's father Mohammad Sadeq, killed by Saddam's men in 1999—fought Saddam from inside Iraq and kept its sense of anti-Iranian Iraqi nationalism intact. Of these tendencies, only al-Sadr's rose up to fight the Americans.

Muqtada al-Sadr's announcement of a unilateral six-month ceasefire on 29th August was significant, but not for the reasons most apparent. Al-Sadr actually stopped fighting the Americans three years ago. He rose up against them twice in 2004, but since the end of his second uprising, his Mahdi army has focused its violence on Wahhabis and Baathists, with frequent clashes against other Shia factions. Al-Sadr's movement is splintered and immature. Its less legitimate fringes have been active in sectarian cleansing. Many who do have ties to his movement frequently work beyond his control. Some of these tendencies continue to direct violence against the coalition, but this is negligible compared to the force of a true Sadrist resistance, as anyone who was in Najaf or Sadr City in 2004 will attest. Since this spring, US troops have been comfortably based in Sadr City—the giant Baghdad slum that is the power base of the Sadrists.

In mid-September, the al-Sadr parliamentary bloc withdrew its support for Maliki's government, without providing a public explanation. This repeats a pattern. In April, al-Sadr withdrew his ministers from the cabinet in ostensible protest at the remaining presence of the coalition forces; while in December 2006 he did the same thing in protest at a meeting between Maliki and Bush. Each of these exercises was greeted as Iraq's latest cataclysm, but, in the latter two cases, a month or two later al-Sadr's chiefs were quietly back fronting the ministries that their minions had continued to run in their absence. The point is that having al-Sadr playing political games rather than military ones is the most positive thing that could be happening in Iraq.

Muqtada al-Sadr, Iraq's most successful, popular and important politician, has underwritten Iraq's progress towards legitimate politics since late 2004. His sense of Iraqi nationalism will never allow Iranian dominance; his fraternal stance towards the peaceful Sunni tendencies, and the sheer size and passion of his movement, make his support for the project of reconstruction and pluralism in Iraq the most important political factor in the country. Prospect readers will not be surprised to read that al-Sadr is on the right side of the key issues, and that this is helping Iraq get over its transition from 35 years of Baathism's murderous apartheid (see "Iraq's rebel democrats," Prospect June 2005). Since 2004 I have pointed out that al-Sadr, as leader of the country's largest popular movement, has more to win from a functioning electoral politics than from fighting the Americans who guaranteed the polls that liberated his people, or from fighting the Iraqi government of which he is himself the joint largest part.

As we have noted, the real al-Sadr ceasefire began three years ago. But by saying publicly, again, that his men are putting down their guns, al-Sadr is declaring in the most unequivocal way that the violence in Iraq is not in his name.

Iranian-made rockets will continue to kill British and American soldiers. Saudi Wahhabis will continue to blow up marketplaces, employment queues and Shia mosques when they can. Iraqi criminals will continue to bully their neighbourhoods into homogeneities that will give the strongest more leverage, although even this tide is turning in most places where Petraeus's surge has reached. Bodies will continue to pile up in the ditches of Doura and east Baghdad as the country goes through the final spasm of the reckoning that was always going to attend the end of 35 years of brutal Sunni rule.

But in terms of national politics, there is nothing left to fight for. The only Iraqis still fighting for more than local factional advantage and criminal dominance are the irrational actors: the Sunni fundamentalists, who number but a thousand or two men-at-arms, most of them not Iraqi. Like other Wahhabi attacks on Iraq in 1805 and 1925, the current one will end soon enough. As the maturing Iraqi state gets control of its borders, and as Iraq's Sunni neighbours recognise that a Shia Iraq must be dealt with, the flow of foreign fighters and suicide bombers into Iraq from Syria will start to dry up. Even today, for all the bloodshed it causes, the violence hardly affects the bigger picture: suicide bombs go off, dozens of innocents die, the Shias mostly hold back and Iraq's tough life goes on.

In early September, Nouri al-Maliki said, "We may differ with our American friends about tactics… But my message to them is one of appreciation and gratitude. To them I say, you have liberated a people, brought them into the modern world… We used to be decimated and killed like locusts in Saddam's endless wars, and we have now come into the light." Here is an eloquent answer to the question of when American troops will leave Iraq. They will leave Iraq when the Iraqis, through their elected leadership, tell them to. According to a September poll, 47 per cent of Iraqis would prefer the Americans to leave. The surprise is that it's not 100 per cent. Who, after all, would not want his country rid of foreign troops? But if Iraqis had wanted government by opinion poll, they would have written their constitution that way. Instead, they chose, as do most people when given the choice, representative government.

Now that the outcome of the war in Iraq has been decided, a common argument heard on Capitol Hill and elsewhere is about moral hazard: the longer we stay, the less incentive Iraqis have to get their act together. They will not achieve reconciliation or become capable of keeping order in their own country, because America is doing the work for them.

This presumes that Iraq's elite is not trying on either front. That is nonsense. What is the basis for the presumption that Iraq's government is failing at political reconciliation? Parts of a 15 per cent minority have capped a 35-year reign of terror with four bloody years of a failed effort to drag historic injustices into the new era, and now the other players do not want to treat that failure like a victory. On a partisan basis, Iraq's governing coalition represents about 85 per cent of the country: almost everybody but some of the Sunnis. This means the Shia Dawa, SIIC, Sadrists and others; the Kurdish KDP and PUK; and various secular and moderate Sunnis. At the local level, the government is reaching out to the Sunnis. Federal money is being pumped into Anbar, and in Baghdad 30 Sunni mosques have been reopened, over half of them in the mostly Shia east. For all Iraqis' understandable complaints about corruption, the coalition, public services and safety, Maliki's government would win another big majority tomorrow.

The Sunnis have three specific worries: oil money, federalism and de-Baathification. On oil, revenues are already being shared out among the provinces and, to please the Americans, an oil-sharing law will probably be passed in the next 6 months. On federalism, the principle of regional autonomy is enshrined in the constitution, the Sunnis will benefit from it by being able to run their own affairs, and everyone else will benefit from avoiding a repeat of the Baathist nightmare of a strong central state, when a much looser arrangement worked for 300 years under the Ottomans. On de-Baathification, a new law this autumn should restore pensions and job access to all but the previous top 1,500 Baathists, almost all of whom are in prison, Syria or Jordan.

The other half of the moral hazard argument is about security: if we provide Iraqis' security for them, they will never do it for themselves. This is equally inaccurate. First, Iraqis are increasingly providing their own security. Second, Maliki and his colleagues run an elected government. They are subject to the judgement of their people in two years' time. They have every reason to try as hard as possible to deliver an end to the embarrassing reliance on the foreigner. It would be foolhardy to bet on Iraq, of all places, becoming the first Islamic state in the middle east not to achieve a basic monopoly on domestic violence.

The argument of this article—that with nothing more to resolve from political violence, Iraqis can now settle down to gorge themselves at the oil trough—is based on two premises: Sunni acknowledgement of the failure of their insurgency and the need to reach an accommodation with the new Iraq, and a conjunction of interests between the coalition on one hand and the Kurds and Shias on the other.

We have become very familiar with General Petraeus and the disputed numbers of his surge. Does US strategy reflect the phenomena I have described? The Americans have never argued this way. But reading between the lines, American thinking does seem broadly to accord with the conclusions of this argument, if not its premises. Petraeus has already announced the first marine and army drawdowns for September and December respectively. His boss, defence secretary Robert Gates, is hoping publicly for a net withdrawal of 60,000 troops next year. Bush too is promising cuts. These plans are a recognition that the job in Iraq is moving rapidly towards something closer to Iraqi police work than American war.