When he got home, he handed the beautiful ham to his wife, Jean. She immediately cut the end off the ham and placed it in a pan.

Zig asked his wife, “Why did you cut the end off my prized ham?”

“Well, that’s how you bake them,” Jean responded. “That’s how my mama cooked a ham.”

“Why did your mama do it that way?”

“I’m not sure,” Jean said. “Let’s call Mama and ask her.”

So Zig and Jean called Mama. “Well, my mama always did it that way,” she said.

So Zig and Jean called Granny.

“Granny,” Jean asked, “why do you always cut the end off the ham? Zig says I shouldn’t do it that way. Mom says she cut the ham because you always cut the ham. I did it because she did it. Nobody knows why we do this. So why did you cut the end off the ham?”

“Well,” Granny responded, “I don’t know why you two did it, but my pan was too short!”

Sound familiar? Sometimes we get so caught up in processes and traditions that we don’t even consider why we use them in the first place. That’s just stupid.

Around Dave Ramsey’s office, we have a saying: “Shoot the sacred cows.”

You are probably familiar with this principle. But, if not, the idea is simply this: Don’t hold on to tradition for the sake of tradition. If something isn’t working, change it. If something is broken, fix it.

Obey the principles, not the processes.

Dave guides his organization with unflinching principles. But he won’t hesitate to change a process and shake things up if this helps equip the company to more effectively carry out these principles.

Your business is your baby, and if you’re not careful, you can get caught up in doing things a certain way “because that’s how they’ve always been done.” That’s a shame.

Of course, there’s nothing wrong with traditions or processes. But we’ve got issues when we begin prioritizing the processes more than the principles that created those processes in the first place. Effective leaders know how to separate the meaningful from the madness.

So what’s your story? Have you been using the same faulty budget for years? Still using credit cards simply because you’ve always used credit cards? Did you take out a 30-year loan because that’s just what you’re “supposed” to do? Think about your decisions—whether with money or anything else! Do they make sense?

Figure out where the sacred cows are in your life and your business, and take them out. Get rid of them for good!

Earlier this month, Google reported YouTube consumption on mobile devices increased 160 percent in 2009 over the previous year, with mobile video playbacks now topping 100 million per day–roughly the same number of daily playbacks streamed via the YouTube.com website when Google acquired the startup for $1.65 billion in late 2006.

According to Bytemobile, four of the top 10 video domains across all geographies offer adult content, together generating 15 of total mobile video traffic, with long-tail content making up the remainder. High-definition video is virtually non-existent, accounting for just 0.07 percent of video-specific traffic volume. Bytemobile also reports that mobile video consumption peaks around 10:00 p.m., at which time networks experience a peak in congestion and users suffer increased video stalling–on average, every 60 seconds of video screened over a 3G network includes about 10 minutes of stalling. The firm adds that mobile users favor lower-quality videos to avoid stalling and enjoy a better media experience.

Bytemobile anonymously sources the aggregate data traffic in a global cross-section of its customers’ networks and provides insight into the current state of the mobile ecosystem.

Report Snapshot

• Mobile video consumption peaks around 10:00 p.m., at which point networks experience the most congestion and users experience the most video stalling.
• Stalling occurs on the fastest of networks, underscoring the probability that not even next-generation network technology will be sufficient to satisfy user demand for data services.
• Mobile users opt for lower-quality videos to avoid stalling and enjoy a better media experience.
• Optimization significantly reduces video stalling, thereby noticeably improving the user experience.
• YouTube accounts for 36% of the total video traffic on wireless networks worldwide. Adult content and ‘long tail’ internet content account for the rest.

President Obama recently delivered a speech where he identified the housing problem as one of foreclosures, citing a study that foreclosure signs depress prices by 9%. This is a lot like saying thermometers cause fevers. 

To deal with this symptom, Congress is promising up to 9,000,000 mortgage defaulting homeowners relief from foreclosure under a new program H.R. 1106. The legislation is being driven through Congress by Speaker Pelosi and Senate Majority Leader Reid, whose two states account for one third of all mortgage defaults of the 50 states. The legislation has many facets, but its main points consist of giving taxpayer funds to borrowers and mortgage servicers and prospectively redistributing bank and bondholder collateral to borrowers. 

On the positive incentive side, the mortgage servicer gets a new added fee for the modification of the loan and a legal safe harbor for effecting a write down of the collateral, and the homeowner may get various forms of debt relief, including a lower principal amount, a lower interest rate, and a bonus for doing what is in their self interest anyway. In concept, it is akin to paying kids to do their homework, as if gaining knowledge to compete and stay alive in a flat world is not incentive enough. 

On the negative incentive side, the bank or bondholder is now subject to new law allowing a federal bankruptcy judge unilateral authority to write down the amount of principal on a mortgage in a consumer bankruptcy. The plan promises up to $75 billion in relief but potentially transfers several hundred billion dollars in collateral to defaulting borrowers. 

Milton Friedman once said that legislation should be judged not on its intentions, but on its results. As pointed out in an article by Caroline Baum, the recent mortgage relief programs were introduced by the Bush administration with great fanfare and few results. The plan to save 240,000 sub-prime mortgage holders called FHASecure was actually only used by only 4,000 borrowers. The more recent HOPE for Homeowners was supposed to help 400,000 homeowners, but was used by only 25. 

H.R.1106 may help a few more borrowers, but not likely in the fashion sold to the American public, and at a cost of dramatically changing the rules. Its overall impact will no doubt be bad. The official plan is that up to 9,000,000 newly defaulting mortgage borrowers will refinance applying guidelines that were popular before the government forced banks to increase loans to unqualified borrowers. Some will be able to refinance at lower interest rates if the mortgage is 105% or less than the value of the house. Others will be able to refinance using only 31% of their income to service debt while the government buys down interest payments. 

The plan excludes many borrowers. It does not provide payouts for defaulters who (A) borrowed privately (i.e., not the government darling Fannie Mae or Freddie Mac loans); (B) borrowed over $729,000 essentially in New York or California, or $417,000 in most other states; (C) refinanced; (D) don’t have a steady enough income to qualify under the new 31% guideline, or, most important, (E) lied about or exaggerated any part of their original application. According to a 2007 Fitch study, 45 out of 45 randomly selected mortgage applications in a typical loan pool were found to have engaged in fraud in the inducement to lend.

There are many problems with this plan. FDIC head Sheila Bair has acknowledged that the government cannot effectively do forensic analysis. Moreover, it is highly unlikely that many borrowers, already defaulted, will submit to go under an IRS audit like microscope while the government conducts a forensic analysis of their past mortgage applications. Because of this, relatively few borrowers will likely qualify or voluntarily use the official plan.

However, the change in the bankruptcy law completely changes the negotiating dynamic between all borrowers and all lenders, whether or not the government incentives are available. Up until now, banks and bondholders could foreclose without forcing borrowers into bankruptcy. Even so, in states like Florida where foreclosures are rampant, the foreclosure process is taking over a year from the day of the first 30 day default to the actual foreclosure sale. During that entire time the defaulted borrower can be living in the house free of charge and without paying down the mortgage. 

It is not difficult to envision a scenario where this situation is exacerbated by H.R. 1106 and the corresponding proposed changes in the bankruptcy laws. By offering a fundamental right to renegotiate the principal of a primary home mortgage, the law could significantly lengthen the time of the property stays in the hands of the defaulting borrower. And who is to say that the costs of filing bankruptcy won’t come down? In fact, by lengthening the procedural time of bankruptcy and foreclosure, the change could be seen as affecting a property seizure under the Constitution, and a denial of due process, since, under H.R.1106, every consumer would have the right to go through bankruptcy to determine their new/lower mortgage principal and interest before a foreclosure could even take place. 

Now consider that we are told there are 9,000,000 homeowners in default, 368 federal bankruptcy judges, and that a typical consumer bankruptcy can take up to five court days. This gives each judge the capacity to fully try about 50 individual cases a year, or a total present national capacity of 18,400 cases a year. Last year 1,000,000 bankruptcies were filed, and thisyear 1,400,000 are expected, absent any changes in the law. But most of these cases are cleared quickly because the rules are well established and outcomes are predictable, and consumers are using Chapter 7 for liquidation. 

With bankruptcy converted from a disgrace to a privilege, if even a modest portion of defaulters choose to file for a Chapter 13 bankruptcy and insist on a trial, the old expectations are gone. This will happen more if the costs of filing for such a bankruptcy are less than the additional costs of meeting all monthly obligations without relief from creditors. Just guessing, the backlog for clearing the bankruptcies will likely significantly lengthen as the stigma of changing a contract falls away and more people are upended. The furor over the AIG executive payments has come out as, “the government should have the right to retroactively change contracts.” Surely, beleaguered consumers will embrace the government’s amoral example.

Many defaulters are now looking at housing as a trading asset, and contemplating walking away if the debt exceeds the current value. 20% of houses meet this walk away threshold and the number is rising as housing prices continue to fall. In addition, the availability of credit card debt is imploding as FICO scores plunge and credit lines are withdrawn (in part because of falling housing prices), setting up a vicious cycle of credit card line reduction impacting the desperation house sale in a negative feedback loop. As recently pointed out by Meredith Whitney in the Wall Street Journal, banks are reducing $ 5 trillion in credit card lines to perhaps as little as $2.3 trillion by the end of 2010, with the result that for many consumers almost every new credit payment simply reduces the credit line, and does not create any new availability of credit.

So once a family finds itself underwater on its mortgage, and at its full credit card limits, the issue becomes which bill should it pay and when. Once upon a time the mortgage was among the first bills to be paid. But if the foreclosure docket is crowded, and a family may be able to live for a year without paying out any cash to the bank, defaulting becomes a more attractive option. Under H.R. 1106, that year could easily stretch out further, disincentivizing any deals with the bank. 

As more and more families rationally conclude that bankruptcy is a superior option, discretionary defaults are starting to soar. These are defaults where mortgages could be paid first if desired, but strategically defaulted. Call it the Thelma & Louise approach to borrowing. And then there is the chance to re-default, as many do. Call it The Nightmare on Elm Street: Part 2.

Private banks and investors will respond by offering mortgage terms more similar to credit card loans for new mortgages: much higher interest rates, much bigger down payments, shorter terms, more hair triggers. This will shut the door on the homeownership dream for many of our children and depress the value of real estate today. Call it the Pawnbroker approach to lending privately. 

So the government could soon be the only game in town for conventional mortgages with traditional terms. Call it the Godfather approach to government backed loans. They were all great movies, but they make for bad policy. 

Finally, one cannot over estimate the impact of the moral injustice of imposing on the large majority of homeowners who have struggled in a worsening economy to meet their obligations, only to find that they will have to pay higher taxes to enable less prudent borrowers to receive a government bailout while they are forced to sacrifice in the face of a slowing economy, a hemorrhaging housing market, a complete rule change, and the unfairness of calling on thrifty states to bailout profligate ones. 

Starting with the President’s number of 9,000,000 defaulters, one can easily envision a scenario of unintended consequences where an additional 5,000,000 or more homeowners default, many using the change in the bankruptcy laws to buy more time. In the game of musical chairs, it is best to move first. H.R. 1106 has opened Pandora’s Box by assuming people will not change their behavior. 

Last year, over $11 trillion in American wealth was destroyed, the bulk of it by imprudent government action. This year, the government is outdoing itself. With one hand, it is shoveling money into banks; with the other hand, it is undermining the securities that often compose a big part of the banks’ capital and implementing policies that ultimately hurt housing’s value. And, while Congress may fancy itself to be Shiva, creating with 500 hands and destroying with 500 hands, it’s not what they were hired to do.

Beckström — a management theorist, entrepreneur and author — was named last year to head up the

Rod Beckström

 new National Cybersecurity Center, or NCSC. To some, it seemed an odd choice since Beckström isn’t an expert in security. But the hope was that he could use his management skills to help coordinate the nation’s often-dysfunctional network defenses.

Part of the Department of Homeland Security — for now, the government’s lead agency for cyber protection — the Center was supposed to be the one place where the defense of civilian, military and intelligence networks could all be marshaled together.

At least, that was the idea. But the Center never had a chance to even start doing its job, Beckström complained in a resignation letter to DHS Secretary Janet Napolitano that has been obtained by Danger Room. The Center “did not receive appropriate support” from the Department of Homeland Security to help coordinate network defenses, he said.

“During the past year the NCSC received only five weeks of funding, due to various roadblocks engineered within the department and by the Office of Management and Budget.”

What’s more, Beckström said, it is a fiction that DHS is in charge of the country’s cyber security. That power, he asserts, is held by the National Security Agency — the supersecret signals intelligence service — that “currently dominates most national cyber efforts.” And that, he says, is not a good idea.

While acknowledging the critical importance of NSA to our intelligence efforts, I believe this is a bad strategy on multiple grounds. The intelligence culture is very different than a network operations of security culture. In addition, the threat to our democratic processes are significant if all top government network security and monitoring are handled by any one organization (either directly of indirectly). During my term as Director we have been unwilling to subjugate the NSCS underneath the NSA.

Last Thursday, the new Director of National Intelligence told Congress that the NSA, not Homeland Security, should be put in charge of network defense.  A week and a day later, Beckström told his bosses that he was through.

“Rod [was] trying to get over NSA’s power grab,” a cyber-security source with deep government ties tells Danger Room. But in the end, Beckström couldn’t. “He jumped nanoseconds before being pushed.”

Britain’s third-largest banking group joins government scheme to insure toxic assets.

Lloyds Banking Group has become the latest U.K. bank to fall under government control since the run onNorthern Rock in September 2007.

The U.K.’s third-largest bank confirmed Saturday that the government is raising its stake to at least 65%, and possibly as high as 77%, in return for insuring $367 billion dollars in toxic assets. The bank has also promised to increase its lending, primarily to businesses, by $39 billion over the next two years.

The increased stake will come about by the government converting its $5.7 billion of preference shares paying 12% into new ordinary shares.

“Participating in the government’s Asset Protection Scheme substantially reduces the risk profile of the group’s balance sheet,” said Chief Executive Eric Daniels in a statement. “Our significantly enhanced capital position will ensure that the group can weather the severest of economic downturns and emerge strongly when the economy recovers.”

Lloyds will bear up to the first $35 billion of any losses and will pay a fee of $21 billion to $23 billion to the government to participate in the scheme. Discussions to bring Lloyds into the arrangement have been under way for several days.

The bank says the toxic assets covered by the governments insurance are expected to include residential mortgages ($105 billion), unsecured personal loans ($26 billion), corporate and commercial loans, including commercial real estate and leveraged finance loans ($214 billion) and treasury assets, including the group’s Alt-A portfolio ($24 billion).

Eighty percent of the assets come from HBOS, which Lloyds agreed to buy in a government-brokered deal in September 2008. HBOS reported $14 billion of loan losses last year, up fivefold from 2007 .

Lloyds’ share price fell 31% in London trading in the past week on rising concerns about the bank’s ability to absorb the losses at HBOS.

The government’s objective in insuring bank assets is to promote lending by taking on some of the risk. Although last year’s round of capital injections did stem some of the sector’s share-price collapse and did build up banks’ capital reserves to better levels than before, lenders were under little pressure to actually spend the cash and grease the wheels of the rickety economy.

Royal Bank of Scotland , which is 70% government-owned, agreed in principle Feb. 26 to an asset-insurance deal that could see the state increase its stake to 95%.

President Obama: Thank you very much.

Madam Speaker, Mr. Vice President, members of Congress, and the first lady of the United States, who’s around here somewhere.

I have come here tonight not only to address the distinguished men and women in this great chamber, but to speak frankly and directly to the men and women who sent us here.

I know that for many Americans watching right now, the state of our economy is a concern that rises above all others, and rightly so. If you haven’t been personally affected by this recession, you probably know someone who has: a friend, a neighbor, a member of your family.

You don’t need to hear another list of statistics to know that our economy is in crisis, because you live it every day. It’s the worry you wake up with and the source of sleepless nights. It’s the job you thought you’d retire from but now have lost, the business you built your dreams upon that’s now hanging by a thread, the college acceptance letter your child had to put back in the envelope.

The impact of this recession is real, and it is everywhere.

But while our economy may be weakened and our confidence shaken, though we are living through difficult and uncertain times, tonight I want every American to know this: We will rebuild, we will recover, and the United States of America will emerge stronger than before.

The weight of this crisis will not determine the destiny of this nation. The answers to our problems don’t lie beyond our reach. They exist in our laboratories and our universities, in our fields and our factories, in the imaginations of our entrepreneurs and the pride of the hardest-working people on Earth.

Those qualities that have made America the greatest force of progress and prosperity in human history we still possess in ample measure. What is required now is for this country to pull together, confront boldly the challenges we face, and take responsibility for our future once more.

Now, if we’re honest with ourselves, we’ll admit that for too long we have not always met these responsibilities, as a government or as a people. I say this not to lay blame or to look backwards, but because it is only by understanding how we arrived at this moment that we’ll be able to lift ourselves out of this predicament.

The fact is, our economy did not fall into decline overnight. Nor did all of our problems begin when the housing market collapsed or the stock market sank.

We have known for decades that our survival depends on finding new sources of energy, yet we import more oil today than ever before.

The cost of health care eats up more and more of our savings each year, yet we keep delaying reform.

Obama at the State of Union

Our children will compete for jobs in a global economy that too many of our schools do not prepare them for.

And though all of these challenges went unsolved, we still managed to spend more money and pile up more debt, both as individuals and through our government, than ever before.

In other words, we have lived through an era where too often short-term gains were prized over long-term prosperity, where we failed to look beyond the next payment, the next quarter, or the next election.

A surplus became an excuse to transfer wealth to the wealthy instead of an opportunity to invest in our future. Regulations…

Regulations — regulations were gutted for the sake of a quick profit at the expense of a healthy market. People bought homes they knew they couldn’t afford from banks and lenders who pushed those bad loans anyway. And all the while, critical debates and difficult decisions were put off for some other time on some other day.

Well, that day of reckoning has arrived, and the time to take charge of our future is here.

Now is the time to act boldly and wisely, to not only revive this economy, but to build a new foundation for lasting prosperity.

Now is the time to jump-start job creation, re-start lending, and invest in areas like energy, health care, and education that will grow our economy, even as we make hard choices to bring our deficit down. That is what my economic agenda is designed to do, and that is what I’d like to talk to you about tonight.

It’s an agenda that begins with jobs. As soon…

As soon as I took office, I asked this Congress to send me a recovery plan by Presidents Day that would put people back to work and put money in their pockets, not because I believe in bigger government — I don’t — not because I’m not mindful of the massive debt we’ve inherited — I am.

I called for action because the failure to do so would have cost more jobs and caused more hardships. In fact, a failure to act would have worsened our long-term deficit by assuring weak economic growth for years. And that’s why I pushed for quick action.

And tonight I am grateful that this Congress delivered and pleased to say that the American Recovery and Reinvestment Act is now law.

Over — over the next two years, this plan will save or create 3.5 million jobs. More than 90 percent of these jobs will be in the private sector, jobs rebuilding our roads and bridges, constructing wind turbines and solar panels, laying broadband and expanding mass transit.

Because of this plan, there are teachers who can now keep their jobs and educate our kids. Health care professionals can continue caring for our sick. There are 57 police officers who are still on the streets of Minneapolis, [Minnesota] tonight because this plan prevented the layoffs their department was about to make.

Because of this plan, 95 percent of working households in America will receive a tax cut, a tax cut that you will see in your paychecks beginning on April 1.

Because of this plan, families who are struggling to pay tuition costs will receive a $2,500 tax credit for all four years of college.

And Americans — and Americans who have lost their jobs in this recession will be able to receive extended unemployment benefits and continued health care coverage to help them weather this storm. Now I know there are some in this chamber and watching at home who are skeptical of whether this plan will work, and I understand that skepticism.

Here in Washington, we’ve all seen how quickly good intentions can turn into broken promises and wasteful spending. And with a plan of this scale comes enormous responsibility to get it right.

And that’s why I’ve asked Vice President Biden to lead a tough, unprecedented oversight effort, because nobody messes with Joe.

I have told each of my Cabinet, as well as mayors and governors across the country, that they will be held accountable by me and the American people for every dollar they spend.

I’ve appointed a proven and aggressive inspector general to ferret out any and all cases of waste and fraud.

And we have created a new Web site called recovery.gov so that every American can find out how and where their money is being spent.

So, the recovery plan we passed is the first step in getting our economy back on track, but it is just the first step, because even if we manage this plan flawlessly, there will be no real recovery unless we clean up the credit crisis that has severely weakened our financial system.

I want to speak plainly and candidly about this issue tonight, because every American should know that it directly affects you and your family’s well-being. You should also know that the money you’ve deposited in banks across the country is safe, your insurance is secure. You can rely on the continued operation of our financial system; that’s not the source of concern.

The concern is that, if we do not re-start lending in this country, our recovery will be choked off before it even begins. You see, the flow of credit is the lifeblood of our economy. The ability to get a loan is how you finance the purchase of everything from a home to a car to a college education, how stores stock their shelves, farms buy equipment, and businesses make payroll.

But credit has stopped flowing the way it should. Too many bad loans from the housing crisis have made their way onto the books of too many banks. And with so much debt and so little confidence, these banks are now fearful of lending out any more money to households, to businesses, or even to each other.

When there’s no lending, families can’t afford to buy homes or cars, so businesses are forced to make layoffs. Our economy suffers even more, and credit dries up even further.

That is why this administration is moving swiftly and aggressively to break this destructive cycle, to restore confidence, and restart lending.

And we will do so in several ways. First, we are creating a new lending fund that represents the largest effort ever to help provide auto loans, college loans, and small-business loans to the consumers and entrepreneurs who keep this economy running.

Second — second, we have launched a housing plan that will help responsible families facing the threat of foreclosure lower their monthly payments and refinance their mortgages.

It’s a plan that won’t help speculators or that neighbor down the street who bought a house he could never hope to afford, but it will help millions of Americans who are struggling with declining home values, Americans who will now be able to take advantage of the lower interest rates that this plan has already helped to bring about. In fact, the average family who refinances today can save nearly $2,000 per year on their mortgage.

Third, we will act with the full force of the federal government to ensure that the major banks that Americans depend on have enough confidence and enough money to lend even in more difficult times. And when we learn that a major bank has serious problems, we will hold accountable those responsible, force the necessary adjustments, provide the support to clean up their balance sheets, and assure the continuity of a strong, viable institution that can serve our people and our economy.

Now, I understand that, on any given day, Wall Street may be more comforted by an approach that gives bank bailouts with no strings attached and that holds nobody accountable for their reckless decisions, but such an approach won’t solve the problem.

And our goal is to quicken the day when we restart lending to the American people and American business and end this crisis once and for all. And I intend to hold these banks fully accountable for the assistance they receive, and this time they will have to clearly demonstrate how taxpayer dollars result in more lending for the American taxpayer.

This time — this time, CEOs won’t be able to use taxpayer money to pad their paychecks, or buy fancy drapes, or disappear on a private jet. Those days are over.

Still, this plan will require significant resources from the federal government and, yes, probably more than we’ve already set aside. But while the cost of action will be great, I can assure you that the cost of inaction will be far greater, for it could result in an economy that sputters along for not months or years, but perhaps a decade.

That would be worse for our deficit, worse for business, worse for you, and worse for the next generation. And I refuse to let that happen.

Now, I understand that when the last administration asked this Congress to provide assistance for struggling banks, Democrats and Republicans alike were infuriated by the mismanagement and the results that followed. So were the American taxpayers; so was I.

So I know how unpopular it is to be seen as helping banks right now, especially when everyone is suffering in part from their bad decisions. I promise you: I get it.

But I also know that, in a time of crisis, we cannot afford to govern out of anger or yield to the politics of the moment.

My job — our job — is to solve the problem. Our job is to govern with a sense of responsibility.

I will not send — I will not spend a single penny for the purpose of rewarding a single Wall Street executive, but I will do whatever it takes to help the small business that can’t pay its workers or the family that has saved and still can’t get a mortgage.

That’s what this is about. It’s not about helping banks; it’s about helping people.

It’s not about helping banks; it’s about helping people. Because when credit is available again, that young family can finally buy a new home. And then some company will hire workers to build it. And then those workers will have money to spend. And if they can get a loan, too, maybe they’ll finally buy that car or open their own business.

Investors will return to the market, and American families will see their retirement secured once more. Slowly, but surely, confidence will return, and our economy will recover.

So — so I ask this Congress to join me in doing whatever proves necessary, because we cannot consign our nation to an open-ended recession. And to ensure that a crisis of this magnitude never happens again, I ask Congress to move quickly on legislation that will finally reform our outdated regulatory system.

It is time. It is time.

It is time to put in place tough, new common-sense rules of the road so that our financial market rewards drive and innovation and punishes shortcuts and abuse.

The recovery plan and the financial stability plan are the immediate steps we’re taking to revive our economy in the short term, but the only way to fully restore America’s economic strength is to make the long-term investments that will lead to new jobs, new industries, and a renewed ability to compete with the rest of the world.

The only way this century will be another American century is if we confront at last the price of our dependence on oil and the high cost of health care, the schools that aren’t preparing our children and the mountain of debt they stand to inherit. That is our responsibility.

In the next few days, I will submit a budget to Congress. So often, we’ve come to view these documents as simply numbers on a page or a laundry list of programs.

I see this document differently. I see it as a vision for America, as a blueprint for our future.

My budget does not attempt to solve every problem or address every issue. It reflects the stark reality of what we’ve inherited: a trillion-dollar deficit, a financial crisis, and a costly recession.

Given these realities, everyone in this chamber — Democrats and Republicans — will have to sacrifice some worthy priorities for which there are no dollars, and that includes me.

But that does not mean we can afford to ignore our long-term challenges.

I reject the view that says our problems will simply take care of themselves, that says government has no role in laying the foundation for our common prosperity, for history tells a different story.

History reminds us that, at every moment of economic upheaval and transformation, this nation has responded with bold action and big ideas.

In the midst of civil war, we laid railroad tracks from one coast to another that spurred commerce and industry.

From the turmoil of the Industrial Revolution came a system of public high schools that prepared our citizens for a new age.

In the wake of war and depression, the GI Bill sent a generation to college and created the largest middle-class in history.

And a twilight struggle for freedom led to a nation of highways, an American on the moon, and an explosion of technology that still shapes our world.

In each case, government didn’t supplant private enterprise; it catalyzed private enterprise. It created the conditions for thousands of entrepreneurs and new businesses to adapt and to thrive.

We are a nation that has seen promise amid peril and claimed opportunity from ordeal. Now we must be that nation again.

That is why, even as it cuts back on programs we don’t need, the budget I submit will invest in the three areas that are absolutely critical to our economic future: energy, health care, and education.

It begins with energy.

We know the country that harnesses the power of clean, renewable energy will lead the 21st century. And yet it is China that has launched the largest effort in history to make their economy energy efficient. We invented solar technology, but we’ve fallen behind countries like Germany and Japan in producing it. New plug-in hybrids roll off our assembly lines, but they will run on batteries made in Korea.

Well, I do not accept a future where the jobs and industries of tomorrow take root beyond our borders, and I know you don’t, either. It is time for America to lead again.

Thanks to our recovery plan, we will double this nation’s supply of renewable energy in the next three years. We’ve also made the largest investment in basic research funding in American history, an investment that will spur not only new discoveries in energy, but breakthroughs in medicine, in science and technology.

We will soon lay down thousands of miles of power lines that can carry new energy to cities and towns across this country. And we will put Americans to work making our homes and buildings more efficient so that we can save billions of dollars on our energy bills.

But to truly transform our economy, to protect our security and save our planet from the ravages of climate change, we need to ultimately make clean, renewable energy the profitable kind of energy.

So I ask this Congress to send me legislation that places a market-based cap on carbon pollution and drives the production of more renewable energy in America. That’s what we need.

And to support — to support that innovation, we will invest $15 billion a year to develop technologies like wind power and solar power, advanced biofuels, clean coal, and more efficient cars and trucks built right here in America.

Speaking of our auto industry, everyone recognizes that years of bad decision-making and a global recession have pushed our automakers to the brink. We should not and will not protect them from their own bad practices.

But we are committed to the goal of a re-tooled, re-imagined auto industry that can compete and win. Millions of jobs depend on it; scores of communities depend on it; and I believe the nation that invented the automobile cannot walk away from it.

Now, none of this will come without cost, nor will it be easy. But this is America. We don’t do what’s easy. We do what’s necessary to move this country forward.

And for that same reason, we must also address the crushing cost of health care.

This is a cost that now causes a bankruptcy in America every 30 seconds. By the end of the year, it could cause 1.5 million Americans to lose their homes. In the last eight years, premiums have grown four times faster than wages. And in each of these years, 1 million more Americans have lost their health insurance.

It is one of the major reasons why small businesses close their doors and corporations ship jobs overseas. And it is one of the largest and fastest-growing parts of our budget.

Given these facts, we can no longer afford to put health care reform on hold. We can’t afford to do it.

It’s time.

Already, we’ve done more to advance the cause of health care reform in the last 30 days than we’ve done in the last decade. When it was days old, this Congress passed a law to provide and protect health insurance for 11 million American children whose parents work full-time.

Our recovery plan will invest in electronic health records and new technology that will reduce errors, bring down costs, ensure privacy, and save lives.

It will launch a new effort to conquer a disease that has touched the life of nearly every American, including me, by seeking a cure for cancer in our time.

And — and it makes the largest investment ever in preventive care, because that’s one of the best ways to keep our people healthy and our costs under control.

This budget builds on these reforms. It includes a historic commitment to comprehensive health care reform, a down payment on the principle that we must have quality, affordable health care for every American. It’s a commitment

It’s a commitment that’s paid for in part by efficiencies in our system that are long overdue, and it’s a step we must take if we hope to bring down our deficit in the years to come.

Now, there will be many different opinions and ideas about how to achieve reform. That’s why I’m bringing together businesses and workers, doctors and health care providers, Democrats and Republicans to begin work on this issue next week.

I suffer no illusions that this will be an easy process. Once again, it will be hard. But I also know that nearly a century after Teddy Roosevelt first called for reform, the cost of our health care has weighed down our economy and our conscience long enough.

So let there be no doubt: Health care reform cannot wait, it must not wait, and it will not wait another year.

The third challenge we must address is the urgent need to expand the promise of education in America.

In a global economy, where the most valuable skill you can sell is your knowledge, a good education is no longer just a pathway to opportunity. It is a prerequisite.

Right now, three-quarters of the fastest-growing occupations require more than a high school diploma, and yet just over half of our citizens have that level of education. We have one of the highest high school dropout rates of any industrialized nation, and half of the students who begin college never finish.

This is a prescription for economic decline, because we know the countries that out-teach us today will out-compete us tomorrow. That is why it will be the goal of this administration to ensure that every child has access to a complete and competitive education, from the day they are born to the day they begin a career. That is a promise we have to make to the children of America.

Already, we’ve made a historic investment in education through the economic recovery plan. We’ve dramatically expanded early childhood education and will continue to improve its quality, because we know that the most formative learning comes in those first years of life.

We’ve made college affordable for nearly 7 million more students, 7 million. And we have provided the resources necessary to prevent painful cuts and teacher layoffs that would set back our children’s progress.

But we know that our schools don’t just need more resources; they need more reform. And that is why…

That is why this budget creates new teachers — new incentives for teacher performance, pathways for advancement, and rewards for success. We’ll invest — we’ll invest in innovative programs that are already helping schools meet high standards and close achievement gaps. And we will expand our commitment to charter schools.

It is…It is our responsibility as lawmakers and as educators to make this system work, but it is the responsibility of every citizen to participate in it.

So tonight I ask every American to commit to at least one year or more of higher education or career training. This can be a community college or a four-year school, vocational training or an apprenticeship. But whatever the training may be, every American will need to get more than a high school diploma.

And dropping out of high school is no longer an option. It’s not just quitting on yourself; it’s quitting on your country. And this country needs and values the talents of every American.

That’s why — that’s why we will support — we will provide the support necessary for all young Americans to complete college and meet a new goal: By 2020, America will once again have the highest proportion of college graduates in the world. That is a goal we can meet.

That’s a goal we can meet.

Now — now, I know that the price of tuition is higher than ever, which is why, if you are willing to volunteer in your neighborhood or give back to your community or serve your country, we will make sure that you can afford a higher education.

And to encourage a renewed spirit of national service for this and future generations, I ask Congress to send me the bipartisan legislation that bears the name of Sen. Orrin Hatch, as well as an American who has never stopped asking what he can do for his country, Sen. Edward Kennedy.

These education policies will open the doors of opportunity for our children, but it is up to us to ensure they walk through them.

In the end, there is no program or policy that can substitute for a parent, for a mother or father who will attend those parent-teacher conferences, or help with homework, or turn off the TV, put away the video games, read to their child.

I speak to you not just as a president, but as a father, when I say that responsibility for our children’s education must begin at home. That is not a Democratic issue or a Republican issue. That’s an American issue.

And there is, of course, another responsibility we have to our children, and that’s the responsibility to ensure that we do not pass on to them a debt they cannot pay. That is critical.

I agree, absolutely.

See, I know we can get some consensus in here.

With the deficit we inherited, the cost of the crisis we face, and the long-term challenges we must meet, it has never been more important to ensure that, as our economy recovers, we do what it takes to bring this deficit down. That is critical.

Now, I’m proud that we passed a recovery plan free of earmarks, and I want to pass a budget next year that ensures that each dollar we spend reflects only our most important national priorities.

And yesterday, I — I held a fiscal summit where I pledged to cut the deficit in half by the end of my first term in office. My administration has also begun to go line by line through the federal budget in order to eliminate wasteful and ineffective programs.

As you can imagine, this is a process that will take some time, but we have already identified $2 trillion in savings over the next decade.

In this budget, we will end education programs that don’t work and end direct payments to large agribusinesses that don’t need them.

We’ll eliminate the no-bid contracts that have wasted billions in Iraq and — and reform our defense budget so that we’re not paying for Cold War-era weapons systems we don’t use.

We will root out — we will root out the waste and fraud and abuse in our Medicare program that doesn’t make our seniors any healthier. We will restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas.

In order to save our children from a future of debt, we will also end the tax breaks for the wealthiest 2 percent of Americans.

Now, let me be clear. Let me be absolutely clear, because I know you’ll end up hearing some of the same claims that rolling back these tax breaks means a massive tax increase on the American people. If your family earns less than $250,000 a year, a quarter-million dollars a year, you will not see your taxes increased a single dime. I repeat: not one single dime.

In fact — not a dime.

In fact — in fact, the recovery plan provides a tax cut — that’s right, a tax cut — for 95 percent of working families. And, by the way, these checks are on the way.

Now, to preserve our long-term fiscal health, we must also address the growing cost in Medicare and Social Security. Comprehensive health care reform is the best way to strengthen Medicare for years to come, and we must also begin a conversation on how to do the same for Social Security, while creating tax-free universal savings accounts for all Americans.

Finally, because we’re also suffering from a deficit of trust, I am committed to restoring a sense of honesty and accountability to our budget. That is why this budget looks ahead 10 years and accounts for spending that was left out under the old rules and, for the first time, that includes the full cost of fighting in Iraq and Afghanistan.

For seven years, we’ve been a nation at war. No longer will we hide its price.

Along with our outstanding national security team, I am now carefully reviewing our policies in both wars, and I will soon announce a way forward in Iraq that leaves Iraq to its people and responsibly ends this war.

And with our friends and allies, we will forge a new and comprehensive strategy for Afghanistan and Pakistan to defeat al Qaeda and combat extremism, because I will not allow terrorists to plot against the American people from safe havens halfway around the world. We will not allow it.

As we meet here tonight, our men and women in uniform stand watch abroad and more are readying to deploy. To each and every one of them, and to the families who bear the quiet burden of their absence, Americans are united in sending one message: We honor your service; we are inspired by your sacrifice; and you have our unyielding support.

To relieve the strain on our forces, my budget increases the number of our soldiers and Marines. And to keep our sacred trust with those who serve, we will raise their pay and give our veterans the expanded health care and benefits that they have earned.

To overcome extremism, we must also be vigilant in upholding the values our troops defend, because there is no force in the world more powerful than the example of America. And that is why I have ordered the closing of the detention center at Guantanamo Bay and will seek swift and certain justice for captured terrorists, because living our values doesn’t make us weaker. It makes us safer, and it makes us stronger.

And that is why I can stand here tonight and say without exception or equivocation that the United States of America does not torture. We can make that commitment here tonight.

In words and deeds, we are showing the world that a new era of engagement has begun, for we know that America cannot meet the threats of this century alone, but the world cannot meet them without America.

We cannot shun the negotiating table nor ignore the foes or forces that could do us harm. We are instead called to move forward with the sense of confidence and candor that serious times demand.

To seek progress towards a secure and lasting peace between Israel and her neighbors, we have appointed an envoy to sustain our effort. To meet the challenges of the 21st century — from terrorism to nuclear proliferation, from pandemic disease to cyber threats to crushing poverty — we will strengthen old alliances, forge new ones, and use all elements of our national power.

And to respond to an economic crisis that is global in scope, we are working with the nations of the G-20 to restore confidence in our financial system, avoid the possibility of escalating protectionism, and spur demand for American goods in markets across the globe, for the world depends on us having a strong economy, just as our economy depends on the strength of the world’s.

As we stand at this crossroads of history, the eyes of all people in all nations are once again upon us, watching to see what we do with this moment, waiting for us to lead.

Those of us gathered here tonight have been called to govern in extraordinary times. It is a tremendous burden, but also a great privilege, one that has been entrusted to few generations of Americans, for in our hands lies the ability to shape our world, for good or for ill.

I know that it’s easy to lose sight of this truth, to become cynical and doubtful, consumed with the petty and the trivial.

But in my life, I have also learned that hope is found in unlikely places, that inspiration often comes not from those with the most power or celebrity, but from the dreams and aspirations of ordinary Americans who are anything but ordinary.

I think of Leonard Abess, a bank president from Miami who reportedly cashed out of his company, took a $60 million bonus, and gave it out to all 399 people who worked for him, plus another 72 who used to work for him. He didn’t tell anyone, but when the local newspaper found out, he simply said, “I knew some of these people since I was 7 years old. I didn’t feel right getting the money myself.”

I think about — I think about Greensburg — Greensburg, Kansas, a town that was completely destroyed by a tornado, but is being rebuilt by its residents as a global example of how clean energy can power an entire community, how it can bring jobs and businesses to a place where piles of bricks and rubble once lay.

“The tragedy was terrible,” said one of the men who helped them rebuild. “But the folks here know that it also provided an incredible opportunity.”

I think about Ty’Sheoma Bethea, the young girl from that school I visited in Dillon, South Carolina, a place where the ceilings leak, the paint peels off the walls, and they have to stop teaching six times a day because the train barrels by their classroom.

She had been told that her school is hopeless. But the other day after class, she went to the public library and typed up a letter to the people sitting in this chamber. She even asked her principal for the money to buy a stamp.

The letter asks us for help and says, “We are just students trying to become lawyers, doctors, congressmen like yourself, and one day president, so we can make a change to not just the state of South Carolina, but also the world. We are not quitters.”

That’s what she said: “We are not quitters.”

These words and these stories tell us something about the spirit of the people who sent us here. They tell us that, even in the most trying times, amid the most difficult circumstances, there is a generosity, a resilience, a decency, and a determination that perseveres, a willingness to take responsibility for our future and for posterity.

Their resolve must be our inspiration. Their concerns must be our cause. And we must show them and all our people that we are equal to the task before us.

I know that we haven’t agreed on every issue thus far.

There are surely times in the future where we will part ways. But I also know that every American who is sitting here tonight loves this country and wants it to succeed.

I know that.

That must be the starting point for every debate we have in the coming months and where we return after those debates are done. That is the foundation on which the American people expect us to build common ground.

And if we do, if we come together and lift this nation from the depths of this crisis, if we put our people back to work and restart the engine of our prosperity, if we confront without fear the challenges of our time and summon that enduring spirit of an America that does not quit, then some day, years from now, our children can tell their children that this was the time when we performed, in the words that are carved into this very chamber, “something worthy to be remembered.”

Thank you. God bless you. And may God bless the United States of America. Thank you. 

Source: CNN

Bailout on my Mind Video 

Writer/Performer/Video Creator: MJ Santos

Musical Arrangement: Glenn Longacre

Copies can be purchased soon through iTunes, Amazon, Rhapsody and Napster–will be available for worldwide distribution before March 23rd

I took a trip to Elkhart, Indiana today. Elkhart is a place that has lost jobs faster than anywhere else in America. In one year, the unemployment rate went from 4.7% to 15.3%. Companies that have sustained this community for years are shedding jobs at an alarming speed, and the people who’ve lost them have no idea what to do or who to turn to. They can’t pay their bills and they’ve stopped spending money. And because they’ve stopped spending money, more businesses have been forced to lay off more workers. Local TV stations have started running public service announcements that tell people where to find food banks, even as the food banks don’t have enough to meet the demand.

As we speak, similar scenes are playing out in cities and towns across the country. Last Monday, more than 1,000 men and women stood in line for 35 firefighter jobs in Miami. Last month, our economy lost 598,000 jobs, which is nearly the equivalent of losing every single job in the state of Maine. And if there’s anyone out there who still doesn’t believe this constitutes a full-blown crisis, I suggest speaking to one of the millions of Americans whose lives have been turned upside down because they don’t know where their next paycheck is coming from.

That is why the single most important part of this Economic Recovery and Reinvestment Plan is the fact that it will save or create up to 4 million jobs. Because that is what America needs most right now.

It is absolutely true that we cannot depend on government alone to create jobs or economic growth. That is and must be the role of the private sector. But at this particular moment, with the private sector so weakened by this recession, the federal government is the only entity left with the resources to jolt our economy back to life. It is only government that can break the vicious cycle where lost jobs lead to people spending less money which leads to even more layoffs. And breaking that cycle is exactly what the plan that’s moving through Congress is designed to do.

When passed, this plan will ensure that Americans who have lost their jobs through no fault of their own can receive greater unemployment benefits and continue their health care coverage. We will also provide a $2,500 tax credit to folks who are struggling to pay the cost of their college tuition, and $1000 worth of badly-needed tax relief to working and middle-class families. These steps will put more money in the pockets of those Americans who are most likely to spend it, and that will help break the cycle and get our economy moving.

But as we learned very clearly and conclusively over the last eight years, tax cuts alone cannot solve all our economic problems – especially tax cuts that are targeted to the wealthiest few Americans. We have tried that strategy time and time again, and it has only helped lead us to the crisis we face right now.

That is why we have come together around a plan that combines hundreds of billions in tax cuts for the middle-class with direct investments in areas like health care, energy, education, and infrastructure – investments that will save jobs, create new jobs and new businesses, and help our economy grow again – now and in the future.

More than 90% of the jobs created by this plan will be in the private sector. These will not be make-work jobs, but jobs doing the work that America desperately needs done. Jobs rebuilding our crumbling roads and bridges, and repairing our dangerously deficient dams and levees so that we don’t face another Katrina. They will be jobs building the wind turbines and solar panels and fuel-efficient cars that will lower our dependence on foreign oil, and modernizing a costly health care system that will save us billions of dollars and countless lives. They’ll be jobs creating 21st century classrooms, libraries, and labs for millions of children across America. And they’ll be the jobs of firefighters, teachers, and police officers that would otherwise be eliminated if we do not provide states with some relief.

Photo: U.S. President Barack Obama addresses his first prime time news conference in the East Room of the White House in Washington, D.C., Feb. 9, 2009. Obama said his economic recovery plan must be put in motion "as soon as possible." (JIM WATSON/AFP/Getty Images)

After many weeks of debate and discussion, the plan that ultimately emerges from Congress must be big enough and bold enough to meet the size of the economic challenge we face right now. It is a plan that is already supported by businesses representing almost every industry in America; by both the Chamber of Commerce and the AFL-CIO. It contains input, ideas, and compromises from both Democrats and Republicans. It also contains an unprecedented level of transparency and accountability, so that every American will be able to go online and see where and how we’re spending every dime. What it does not contain, however, is a single pet project, and it has been stripped of the projects members of both parties found most objectionable.

Despite all of this, the plan is not perfect. No plan is. I can’t tell you for sure that everything in this plan will work exactly as we hope, but I can tell you with complete confidence that a failure to act will only deepen this crisis as well as the pain felt by millions of Americans. My administration inherited a deficit of over $1 trillion, but because we also inherited the most profound economic emergency since the Great Depression, doing too little or nothing at all will result in an even greater deficit of jobs, incomes; and confidence. That is a deficit that could turn a crisis into a catastrophe. And I refuse to let that happen. As long as I hold this office, I will do whatever it takes to put this country back to work.

I want to thank the members of Congress who’ve worked so hard to move this plan forward, but I also want to urge all members of Congress to act without delay in the coming week to resolve their differences and pass this plan.

We find ourselves in a rare moment where the citizens of our country and all countries are watching and waiting for us to lead. It is a responsibility that this generation did not ask for, but one that we must accept for the sake of our future and our children’s. The strongest democracies flourish from frequent and lively debate, but they endure when people of every background and belief find a way to set aside smaller differences in service of a greater purpose. That is the test facing the United States of America in this winter of our hardship, and it is our duty as leaders and citizens to stay true to that purpose in the weeks and months ahead. After a day of speaking with and listening to the fundamentally decent men and women who call this nation home, I have full faith and confidence that we can. And with that, I’ll take your questions.

And let me go to Jennifer Loven at [The Associated Press]. There you go.

Question: Thank you, Mr. President. Earlier today in Indiana, you said something striking. You said that this nation could end up in a crisis without action that we would be unable to reverse.

Can you talk about what you know or what you’re hearing that would lead you to say that our recession might be permanent when others in our history have not? And do you think that you risk losing some credibility or even talking down the economy by using dire language like that?

Obama: No, no, no, no. I think that what I’ve said is what other economists have said across the political spectrum, which is that, if you delay acting on an economy of this severity, then you potentially create a negative spiral that becomes much more difficult for us to get out of.

We saw this happen in Japan in the 1990s, where they did not act boldly and swiftly enough and, as a consequence, they suffered what was called the lost decade, where essentially, for the entire ’90s, they did not see any significant economic growth.

So what I’m trying to underscore is what the people in Elkhart already understand, that this is not your ordinary, run-of-the-mill recession. We are going through the worst economic crisis since the Great Depression.

We’ve lost now 3.6 million jobs, but what’s perhaps even more disturbing is that almost half of that job loss has taken place over the last three months, which means that the problems are accelerating instead of getting better.

Now, what I said in Elkhart today is what I repeat this evening, which is, I’m absolutely confident that we can solve this problem, but it’s going to require us to take some significant, important steps.

Step number one: We have to pass an economic recovery and reinvestment plan. And we’ve made progress. There was a vote this evening that moved the process forward in the Senate. We already have a House bill that’s passed. I’m hoping, over the next several days, that the House and the Senate can reconcile their differences and get that bill on my desk.

There have been criticisms from a bunch of different directions about this bill, so let me just address a few of them.

Some of the criticisms really are with the basic idea that government should intervene at all in this moment of crisis. Now, you have some people, very sincere, who philosophically just think the government has no business interfering in the marketplace. And, in fact, there are several who’ve suggested that FDR was wrong to interfere back in the New Deal. They’re fighting battles that I thought were resolved a pretty long time ago.

Most economists almost unanimously recognize that, even if philosophically you’re — you’re wary of government intervening in the economy, when you have the kind of problem we have right now — what started on Wall Street, goes to Main Street, suddenly businesses can’t get credit, they start paring back their investment, they start laying off workers, workers start pulling back in terms of spending — that, when you have that situation, that government is an important element of introducing some additional demand into the economy.

We stand to lose about $1 trillion worth of demand this year and another trillion next year. And what that means is you’ve got this gaping hole in the economy.

That’s why the figure that we initially came up with of approximately $800 billion was put forward. That wasn’t just some random number that I plucked out of — out of a hat. That was Republican and Democratic, conservative and liberal economists that I spoke to who indicated that, given the magnitude of the crisis and the fact that it’s happening worldwide, it’s important for us to have a bill of sufficient size and scope that we can save or create 4 million jobs.

That still means that you’re going to have some net job loss, but at least we can start slowing the trend and moving it in the right direction.

Now, the recovery and reinvestment package is not the only thing we have to do. It’s one leg of the stool. We are still going to have to make sure that we are attracting private capital, get the credit markets flowing again, because that’s the lifeblood of the economy.

And so tomorrow my treasury secretary, Tim Geithner, will be announcing some very clear and specific plans for how we are going to start loosening up credit once again.

And that means having some transparency and oversight in the system. It means that we correct some of the mistakes with TARP that were made earlier, the lack of consistency, the lack of clarity, in terms of how the program was going to move forward.

It means that we condition taxpayer dollars that are being provided to banks on them showing some restraint when it comes to executive compensation, not using the money to charter corporate jets when they’re not necessary.

It means that we focus on housing and how are we going to help homeowners that are suffering foreclosure or homeowners who are still making their mortgage payments, but are seeing their property values decline.

So there are going to be a whole range of approaches that we have to take for dealing with the economy. My bottom line is to make sure that we are saving or creating 4 million jobs, we are making sure that the financial system is working again, that homeowners are getting some relief.

And I’m happy to get good ideas from across the political spectrum, from Democrats and Republicans. What I won’t do is return to the failed theories of the last eight years that got us into this fix in the first place, because those theories have been tested, and they have failed. And that’s what part of the election in November was all about.

OK. Karen Boeing (ph) of Reuters?

Question: Thank you, Mr. President. I’d like to shift gears to foreign policy. What is your strategy for engaging Iran? And when will you start to implement it? Will your timetable be affected at all by the Iranian elections? And are you getting any indications that Iran is interested in a dialogue with the United States?

Obama: I said during the campaign that Iran is a country that has extraordinary people, extraordinary history and traditions, but that its actions over many years now have been unhelpful when it comes to promoting peace and prosperity both in the region and around the world, that their attacks — or their — their financing of terrorist organizations like Hezbollah and Hamas, the bellicose language that they’ve used towards Israel, their development of a nuclear weapon or their pursuit of a nuclear weapon, that all those things create the possibility of destabilizing the region and are not only contrary to our interests, but I think are contrary to the interests of international peace.

What I’ve also said is that we should take an approach with Iran that employs all of the resources at the United States’ disposal, and that includes diplomacy.

And so my national security team is currently reviewing our existing Iran policy, looking at areas where we can have constructive dialogue, where we can directly engage with them.

And my expectation is, in the coming months, we will be looking for openings that can be created where we can start sitting across the table, face-to-face diplomatic overtures, that will allow us to move our policy in a new direction.

There’s been a lot of mistrust built up over the years, so it’s not going to happen overnight. And it’s important that, even as we engage in this direct diplomacy, we are very clear about certain deep concerns that we have as a country, that Iran understands that we find the funding of terrorist organizations unacceptable, that we’re clear about the fact that a nuclear Iran could set off a nuclear arms race in the region that would be profoundly destabilizing.

So there are going to be a set of objectives that we have in these conversations, but I think that there’s the possibility at least of a relationship of mutual respect and progress.

And I think that, if you look at how we’ve approached the Middle East, my designation of George Mitchell as a special envoy to help deal with the Arab-Israeli situation, some of the interviews that I’ve given, it indicates the degree to which we want to do things differently in the region.

Now it’s time for Iran to send some signals that it wants to act differently, as well, and recognize that, even as it has some rights as a member of the international community, with those rights come responsibilities.

OK. Chip Reid?

Question: Thank you, Mr. President. You have often said that bipartisanship is extraordinarily important, overall and in this stimulus package, but now, when we ask your advisers about the lack of bipartisanship so far — zero votes in the House, three in the Senate — they say, “Well, it’s not the number of votes that matters; it’s the number of jobs that will be created.”

Is that a sign that you are moving away — your White House is moving away from this emphasis on bipartisanship?

And what went wrong? Did you underestimate how hard it would be to change the way Washington works?

Obama: Well, I don’t think — I don’t think I underestimated it. I don’t think the — the American people underestimated it. They understand that there have been a lot of bad habits built up here in Washington, and it’s going to take time to break down some of those bad habits.

You know, when I made a series of overtures to the Republicans, going over to meet with both Republican caucuses, you know, putting three Republicans in my cabinet — something that is unprecedented — making sure that they were invited here to the White House to talk about the economic recovery plan, all those were not designed simply to get some short-term votes. They were designed to try to build up some trust over time.

And I think that, as I continue to make these overtures, over time, hopefully that will be reciprocated.

But understand the bottom line that I’ve got right now, which is what’s happening to the people of Elkhart and what’s happening across the country. I can’t afford to see Congress play the usual political games. What we have to do right now is deliver for the American people.

So my bottom line when it comes to the recovery package is: Send me a bill that creates or saves 4 million jobs. Because everybody has to be possessed with a sense of urgency about putting people back to work, making sure that folks are staying in their homes, that they can send their kids to college.

That doesn’t negate the continuing efforts that I’m going to make to listen and engage with my Republican colleagues. And hopefully the tone that I’ve taken, which has been consistently civil and respectful, will pay some dividends over the long term. There are going to be areas where we disagree, and there are going to be areas where we agree.

As I said, the one concern I’ve got on the stimulus package, in terms of the debate and listening to some of what’s been said in Congress, is that there seems to be a set of folks who — I don’t doubt their sincerity — who just believe that we should do nothing.

Now, if that’s their opening position or their closing position in negotiations, then we’re probably not going to make much progress, because I don’t think that’s economically sound and I don’t think what — that’s what the American people expect, is for us to stand by and do nothing.

There are others who recognize that we’ve got to do a significant recovery package, but they’re concerned about the mix of what’s in there. And if they’re sincere about it, then I’m happy to have conversations about this tax cut versus that — that tax cut or this infrastructure project versus that infrastructure project.

But what I’ve — what I’ve been concerned about is some of the language that’s been used suggesting that this is full of pork and this is wasteful government spending, so on and so forth.

First of all, when I hear that from folks who presided over a doubling of the national debt, then, you know, I just want them to not engage in some revisionist history. I inherited the deficit that we have right now and the economic crisis that we have right now.

Number two is that, although there are some programs in there that I think are good policy, some of them aren’t job-creators. I think it’s perfectly legitimate to say that those programs should be out of this particular recovery package and we can deal with them later.

But when they start characterizing this as pork, without acknowledging that there are no earmarks in this package — something, again, that was pretty rare over the last eight years — then you get a feeling that maybe we’re playing politics instead of actually trying to solve problems for the American people.

So I’m going to keep on engaging. I hope that, as we get the Senate and the House bills together, that everybody is willing to give a little bit. I suspect that the package that emerges is not going to be 100 percent of what I want.

But my bottom line is, are we creating 4 million jobs? And are we laying the foundation for long-term economic growth?

This is another concern that I’ve had in some of the arguments that I’m hearing. When people suggest that, “What a waste of money to make federal buildings more energy-efficient.” Why would that be a waste of money?

We’re creating jobs immediately by retrofitting these buildings or weatherizing 2 million Americans’ homes, as was called for in the package, so that right there creates economic stimulus.

And we are saving taxpayers when it comes to federal buildings potentially $2 billion. In the case of homeowners, they will see more money in their pockets. And we’re reducing our dependence on foreign oil in the Middle East. Why wouldn’t we want to make that kind of investment?

Now, maybe philosophically you just don’t think that the federal government should be involved in energy policy. I happen to disagree with that; I think that’s the reason why we find ourselves importing more foreign oil now than we did back in the early ’70s when OPEC first formed.

And we can have a respectful debate about whether or not we should be involved in energy policymaking, but don’t suggest that somehow that’s wasteful spending. That’s exactly what this country needs.

The same applies when it comes to information technologies in health care. We know that health care is crippling businesses and making us less competitive, as well as breaking the banks of families all across America. And part of the reason is, we’ve got the most inefficient health care system imaginable.

We’re still using paper. We’re still filing things in triplicate. Nurses can’t read the prescriptions that doctors — that doctors have written out. Why wouldn’t we want to put that on — put that on an electronic medical record that will reduce error rates, reduce our long-term costs of health care, and create jobs right now?

Education, yet another example. The suggestion is, why should the federal government be involved in school construction?

Well, I visited a school down in South Carolina that was built in the 1850s. Kids are still learning in that school, as best they can, when the — when the railroad — when the — it’s right next to a railroad. And when the train runs by, the whole building shakes and the teacher has to stop teaching for a while. The — the auditorium is completely broken down; they can’t use it.

So why wouldn’t we want to build state-of-the-art schools with science labs that are teaching our kids the skills they need for the 21st century, that will enhance our economy, and, by the way, right now, will create jobs?

So, you know, we — we can differ on some of the particulars, but, again, the question I think the American people are asking is, do you just want government to do nothing, or do you want it to do something? If you want it to do something, then we can have a conversation. But doing nothing, that’s not an option from my perspective.

All right, Chuck Todd. Where’s Chuck?

Question: Thank you, Mr. President. In your opening remarks, you talked about that, if your plan works the way you want it to work, it’s going to increase consumer spending. But isn’t consumer spending, or overspending, how we got into this mess? And if people get money back into their pockets, do you not want them saving it or paying down debt first before they start spending money into the economy?

Obama: Well, first of all, I don’t think it’s accurate to say that consumer spending got us into this mess. What got us into this mess initially were banks taking exorbitant, wild risks with other people’s monies based on shaky assets and because of the enormous leverage, where they had one dollar’s worth of assets and they were betting thirty dollars on that one dollar, what we had was a crisis in the financial system.

That led to a contraction of credit, which, in turn, meant businesses couldn’t make payroll or make inventories, which meant that everybody became uncertain about the future of the economy, so people started making decisions accordingly, reducing investment, initiating layoffs, which, in turn, made things worse.

Now, you are making a legitimate point, Chuck, about the fact that our savings rate has declined and this economy has been driven by consumer spending for a very long time. And that’s not going to be sustainable.

You know, if — if all we’re doing is spending and we’re not making things, then over time other countries are going to get tired of lending us money and eventually the party’s going to be over. Well, in fact, the party now is over.

And so the — the sequence of how we’re approaching this is as follows. Our immediate job is to stop the downward spiral, and that means putting money into consumer’s pockets. It means loosening up credit.

It means putting forward investments that not only employ people immediately, but also lay the groundwork for long-term economic growth.

And — and that, by the way, is important, even if you’re a fiscal conservative, because the biggest problem we’re going to have with our federal budget is if we continue a situation in which there are no tax revenues because economic growth is plummeting at the same time as we’ve got more demands for unemployment insurance, we’ve got more demands for people who have lost their health care, more demand for food stamps. That will put enormous strains on the federal budget, as well as the state budget.

So the most important thing we can do for our budget crisis right now is to make sure that the economy doesn’t continue to tank. And that’s why passing the economic recovery plan is the right thing to do, even though I recognize that it’s expensive.

Look, I — I would love not to have to spend money right now. I’d love — you know, this notion that somehow I came in here just ginned up to spend $800 billion, you know, I mean, that wasn’t — that wasn’t — that wasn’t how I envisioned my presidency beginning. But we have to adapt to existing circumstances.

Now, what we are going to also have to do is to make sure that, as soon as the economy stabilizes, investment begins again, we’re no longer contracting but we’re growing, that our mid-term and long-term budget is dealt with, and I think the same is true for individual consumers.

Right now, they’re — they’re just trying to figure out, how do I make sure that, if I lose my job, you know, I’m still going to be able to make my mortgage payments? Or they’re worried about, how am I going to pay next month’s bills? So they’re not engaging in a lot of long-term financial planning.

Once the economy stabilizes and people are less fearful, then I do think that we’re going to have to start thinking about, how do we operate more prudently? Because there’s no such thing as a free lunch.

So if — if you want to get — if you want to buy a house, then putting zero down and buying a house that is probably not affordable for you in case something goes wrong, that’s something that has to be reconsidered. So we’re going to have to change our — our bad habits.

But right now, the key is making sure that we pull ourselves out of the economic slump that we’re in.

All right, Julianna Goldman, Bloomberg?

Question: Thank you, Mr. President. Many experts, from Nouriel Roubini to Sen. [Chuck] Schumer, have said that it will cost the government more than $1 trillion to really fix the financial system. During the campaign, you promised the American people that you won’t just tell them what they want to hear, but what they need to hear.

Won’t the government need far more than the $350 billion that’s remaining in the financial rescue funds to really solve the credit crisis?

Obama: Well, the credit crisis is real, and it’s not over. We averted catastrophe by passing the TARP legislation. But, as I said before, because of a lack of clarity and consistency in how it was applied, a lack of oversight in — in how the money went out, we didn’t get as big of a bang for the buck as we should have.

My immediate task is making sure that the second half of that money, $350 billion, is spent properly. That’s my first job. Before I even think about what else I’ve got to do, my first task is to make sure that my secretary of the treasury, Tim Geithner, working with Larry Summers, my national economic adviser, and others are coming up with the best possible plan to use this money wisely in a way that’s transparent, in a way that provides clear oversight, that we are conditioning any money that we give to banks on them reducing executive compensation to reasonable levels and to make sure that they’re not wasting that money.

We are going to have to work with the banks in an effective way to clean up their balance sheets so that some trust is restored within the marketplace, because right now part of the problem is that nobody really knows what’s on the bank’s books. Any given bank, they’re not sure what kinds of losses are there. We’ve got to open things up and restore some trust.

We also have to deal with the housing issue in a clear and consistent way.

I don’t want to pre-empt my secretary of the treasury. He’s going to be laying out these principles in great detail tomorrow.

But my instruction to him has been: Let’s get this right. Let’s create a template in which we’re restoring market confidence.

And the reason that’s so important is because we don’t know yet whether we’re going to need additional money or how much additional money we’ll need until we’ve seen how successful we are at restoring a sense of confidence in the marketplace that the federal government and the Federal Reserve Bank and the FDIC, working in concert, know what they’re doing.

That can make a big difference in terms of whether or not we attract private capital back into the marketplace. And ultimately the government cannot substitute for all the private capital that has been withdrawn from the system. We’ve got to restore confidence so that private capital goes back in.

OK. Jake?

Question: Thank you, Mr. President. My question follows Julianna’s in — in content. The American people have seen hundreds of billions of dollars spent already, and still the economy continues to freefall.

Beyond avoiding the national catastrophe that you’ve warned about, once all the legs of your stool are in place…

Obama: Right. 

Question: … how can the American people gauge whether or not your programs are working? Can they — should they be looking at the metric of the stock market, home foreclosures, unemployment? What metric should they use when and how will they know if it’s working or whether or not we need to go to a Plan B?

Obama: I think my initial measure of success is creating or saving 4 million jobs. That’s bottom line number one, because, if people are working, then they’ve got enough confidence to make purchases, to make investments. Businesses start seeing that consumers are out there with a little more confidence, and they start making investments, which means they start hiring workers. So step number one: job creation.

Step number two: Are we seeing the credit markets operate effectively? You know, I can’t tell you how many businesses that I talk to that are successful businesses but just can’t get credit.

Part of the problem in Elkhart that I heard about today was the fact that — this is the R.V. capital of America. You’ve got a bunch of R.V. companies that have customers who want to purchase R.V.s, but even though their credit is good, they can’t get the loan.

Now, the businesses also can’t get loans to make payments to their suppliers. But when they have consumers, consumers can’t get the loans that they need. So normalizing the credit markets is, I think, step number two.

Step number three is going to be housing. Have we stabilized the housing market? Now, you know, the federal government doesn’t have complete control over that, but if our plan is effective, working with the Federal Reserve Bank, working with the FDIC, I think what we can do is stem the rate of foreclosure and we can start stabilizing housing values over time.

And the most — the — the biggest measure of success is whether we stop contracting and shedding jobs and we start growing again.

Now, you know, I don’t have a crystal ball. And as I said, this is an unprecedented crisis. But my hope is that after a difficult year — and this year is going to be a difficult year — that businesses start investing again, they start making decisions that, you know, in fact, there’s money to be made out there, customers or consumers start feeling that their jobs are stable and safe, and they start making purchases again, and, if we get things right, then, starting next year, we can start seeing significant improvement.

Ed Henry. Where’s Ed? CNN, there he is.

Question: Thank you, Mr. President. You’ve promised to send more troops to Afghanistan. And since you’ve been very clear about a timetable to withdraw combat troops from Iraq within 16 months, I wonder, what’s your timetable to withdraw troops eventually from Afghanistan?

And related to that, there’s a Pentagon policy that bans media coverage of the flag-draped coffins from coming in to Dover Air Force Base. And back in 2004, then-Senator Joe Biden said that it was shameful for dead soldiers to be, quote, “snuck back into the country under the cover of night.”

You’ve promised unprecedented transparency, openness in your government. Will you overturn that policy so the American people can see the full human cost of war?

Obama: Your question is timely. We got reports that four American service members have been killed in Iraq today. And, you know, obviously, our thoughts and prayers go out to the families.

I’ve said before that — you know, people have asked me, when did it hit you that you are now president? And what I told them was the most sobering moment is signing letters to the families of our fallen heroes. It reminds you of the responsibilities that you carry in this office and — and the consequences of the decisions that you make.

Now, with respect to the policy of opening up media to loved ones being brought back home, we are in the process of reviewing those policies in conversations with the Department of Defense, so I don’t want to give you an answer now before I’ve evaluated that review and understand all the implications involved.

With respect to Afghanistan, this is going to be a big challenge. I think, because of the extraordinary work done by our troops and some very good diplomatic work done by Ambassador Crocker in Iraq, we just saw an election in Iraq that went relatively peacefully and you get a sense that the political system is now functioning in a meaningful way.

You do not see that yet in Afghanistan. They’ve got elections coming up, but effectively the national government seems very detached from what’s going on in the surrounding community.

In addition, you’ve got the Taliban and Al Qaeda operating in the FATA and these border regions between Afghanistan and Pakistan. And what we haven’t seen is the kind of concerted effort to root out those safe havens that would ultimately make our mission successful.

So we are undergoing a thorough going review. Not only is General Petraeus — now the head of CENTCOM — conducting his own review; he’s now working in concert with the special envoy that I’ve sent over, Richard Holbrooke, one of our top diplomats, to evaluate a regional approach.

We are going to need more effective coordination of our military efforts, with diplomatic efforts, with development efforts, with more effective coordination with our allies in order for us to be successful.

The bottom line though — and I just want to remember the American people, because this is going to be difficult — is this is a situation in which a region served as the base to launch an attack that killed 3,000 Americans.

And this past week, I met with families of those who were lost in 9/11, a reminder of the costs of allowing those safe havens to exist.

My bottom line is that we cannot allow Al Qaeda to operate. We cannot have those safe havens in that region. And we’re going to have to work both smartly and effectively, but with consistency in order to make sure that those safe havens don’t exist.

I do not have yet a timetable for how long that’s going to take. What I know is I’m not going to make — I’m not going to allow Al Qaeda or bin Laden to operate with impunity, planning attacks on the U.S. homeland.

All right. Helene Cooper. Where’s Helene? There you are.

Question: Thank you, sir. I wanted to ask you, on the next bank bailout, are you going to impose a requirement that the financial institutions use this money to loosen up credit and make new lending? And if not, how do you make the case to the American people that this bailout will work when the last one didn’t?

Obama: Again, Helene — and I’m trying to avoid pre-empting my secretary of the treasury. I want all of you to show up at his press conference, as well. He’s going to be terrific.

But this relates to Jake’s earlier question. One of my bottom lines is whether or not credit is flowing to the people who need it. Is it flowing to banks — excuse me. Is it flowing to businesses, large and small? Is it flowing to consumers? Are they able to operate in ways that translate into jobs and economic growth on Main Street?

And the package that we’ve put together is designed to help do that. And beyond that, I’m going to make sure that Tim gets his moment in the sun tomorrow.

All right. Major Garrett, where’s Major?

Question: Mr. President, at a speech Friday that many of us covered, Vice President Biden said the following thing about a conversation the two of you had in the Oval Office about a subject he didn’t disclose.

“If we do everything right, if we do it with absolute certainty, if we stand up there and we really make the tough decisions, there’s still a 30 percent chance we’re going to get it wrong.”

Since the vice president brought it up, can you tell the American people, sir, what you were talking about? And if not, can you at least reassure them it wasn’t the stimulus bill or the bank rescue plan and if, in general, you agree with that ratio of success, 30 percent failure, 70 percent success?

Obama: You know, I don’t remember exactly what Joe was referring to…

(LAUGHTER)

… not surprisingly. But let me try this out. I think what Joe may have been suggesting — although I wouldn’t put numerical — I wouldn’t ascribe any numerical percentage to any of this — is that, given the magnitude of the challenges that we have, any single thing that we do is going to be part of the solution, not all of the solution.

And as I said in my introductory remarks, not everything we do is going to work out exactly as we intended it to work out. You know, this is an unprecedented problem.

And, you know, when you talk to economists, there’s some general sense of how we’re going to move forward. There’s some strong consensus about the need for a recovery package of a certain magnitude. There’s a strong consensus that you shouldn’t put all your eggs in one basket, all tax cuts or all investment, but that there should be a range of approaches.

But even if we do everything right on that, we’ve still got to deal with what we just talked about, the financial system, and making sure that banks are lending again. We’re still going to have to deal with housing. We’re still going to have to make sure that we’ve got a regulatory structure, a regulatory architecture for the financial system that prevents crises like this from occurring again.

Now, those are big, complicated tasks. So I don’t know whether Joe was referring to that, but I used that as a launching point to make a general point about these issues.

Question: (off mic)

Obama: I have no idea. I really don’t.

Michael Fletcher from the Washington Post?

Question: Yes, thank you, sir. What is your reaction to Alex Rodriguez’s admission that he used steroids as a member of the Texas Rangers?

Obama: You know, I think it’s depressing news on top of what’s been a flurry of depressing items when it comes to Major League Baseball. And if you’re a fan of Major League Baseball, I think it — it tarnishes an entire era, to some degree. And it’s unfortunate, because I think there are a lot of ballplayers who played it straight.

And, you know, the thing I’m probably most concerned about is the message it sends to our kids. What I’m pleased about is Major League Baseball seems to finally be taking this seriously, to recognize how big a problem this is for the sport, and that our kids hopefully are watching and saying, “You know what? There are no short cuts, that when you try to take short cuts, you may end up tarnishing your entire career, and that your integrity’s not worth it.” That’s the message I hope is communicated.

All right. Helen? This is my inaugural moment here.

(LAUGHTER)

I’m really excited.

Question: Mr. President, do you think that Pakistan and — are maintaining the safe havens in Afghanistan for these so-called terrorists? And, also, do you know of any country in the Middle East that has nuclear weapons?

Obama: Well, I think that Pakistan — there is no doubt that, in the FATA region of Pakistan, in the mountainous regions along the border of Afghanistan, that there are safe havens where terrorists are operating.

And one of the goals of Ambassador Holbrooke, as he is traveling throughout the region, is to deliver a message to Pakistan that they are endangered as much as we are by the continuation of those operations and that we’ve got to work in a regional fashion to root out those safe havens.

It’s not acceptable for Pakistan or for us to have folks who, with impunity, will kill innocent men, women and children. And, you know, I — I believe that the new government of Pakistan and — and Mr. Zardari cares deeply about getting control of the situation. We want to be effective partners with them on that issue.

Question: (off mic)

Obama: Well, Mr. Holbrooke is there, and that’s exactly why he’s being sent there, because I think that we have to make sure that Pakistan is a stalwart ally with us in battling this terrorist threat.

With respect to nuclear weapons, you know, I don’t want to speculate. What I know is this: that if we see a nuclear arms race in a region as volatile as the Middle East, everybody will be in danger.

And one of my goals is to prevent nuclear proliferation generally. I think that it’s important for the United States, in concert with Russia, to lead the way on this.

And, you know, I’ve mentioned this in conversations with the Russian president, Mr. Medvedev, to let him know that it is important for us to restart the — the conversations about how we can start reducing our nuclear arsenals in an effective way so that…

(CROSSTALK)

Obama: … so that we then have the standing to go to other countries and start stitching back together the nonproliferation treaties that, frankly, have been weakened over the last several years. OK.

Question: Why do you have to speculate on who has…

(CROSSTALK)

Obama: All right.

Sam Stein, Huffington Post. Where’s Sam? Here. Go ahead.

Question: Thank you, Mr. President. Today, Senator Patrick Leahy announced that he wants to set up a truth and reconciliation committee to investigate the misdeeds of the Bush administration. He said that, before you turn the page, you have to read the page first.

Do you agree with such a proposal? And are you willing to rule out right here and now any prosecution of Bush administration officials?

Obama: I haven’t seen the proposals, so I don’t want to express an opinion on something that I haven’t seen.

What I have said is that my administration is going to operate in a way that leaves no doubt that we do not torture, that we abide by the Geneva Conventions, and that we observe our traditions of rule of law and due process, as we are vigorously going after terrorists that can do us harm. And I don’t think those are contradictory; I think they are potentially complementary.

My view is also that nobody’s above the law and, if there are clear instances of wrongdoing, that people should be prosecuted just like any ordinary citizen.

But that, generally speaking, I’m more interested in looking forward than I am in looking backwards. I want to pull everybody together, including, by the way, the — all the members of the intelligence community who have done things the right way and have been working hard to protect America and I think sometimes are painted with a broad brush without adequate information.

So I will take a look at Senator Leahy’s proposal, but my general orientation is to say let’s get it right moving forward.

Mara Liasson?

Question: Thank you, Mr. President. If it’s this hard to get more than a handful of Republican votes on what is relatively easy — spending tons of money and cutting people’s taxes — when you look down the road at health care, and entitlement reform, and energy reform, those are really tough choices. You’re going to be asking some people to get less and some people to pay more.
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What do you think you’re going to have to do to get more bipartisanship? Are you going to need a new legislative model, bringing in Republicans from the very beginning, getting more involved in the details yourself from the beginning, or using bipartisan commissions? What has this experience with the stimulus led you to think about when you think about these future challenges?

Obama: Well, as I said before, Mara, I think that old habits are hard to break. And we’re coming off an election, and I think people want to sort of test the limits of — of what they can get.

Trade between the United States and its two closest neighbors has accelerated under NAFTA. But there are still some rough patches to work out between the three countries.

By Adrienne Selko, IndustryWeek 

Feb. 1, 2009 — Given President Obama’s well publicized ambivalence toward the North American Free Trade Agreement (NAFTA) during the presidential campaign, it’s a good time to ask: Is NAFTA working? From a U.S. export market perspective, NAFTA has indeed delivered the goods. Specifically, U.S. goods exported to Canada and Mexico have more than doubled between 1993 and 2007 — from $141.9 billion to nearly $385 billion. NAFTA accounts for fully a third (33%) of the U.S. trade total. 

Merchandise trade between the United States and its NAFTA partners as a share of U.S. GDP has grown from 4.4% in 1993 to 6.6% in 2007. From a regional perspective total trilateral merchandise trade (both imports and exports) rose more than threefold since 1993, now exceeding $900 billion annually. 

OK, that’s fine for the economists, but what has NAFTA meant for U.S. manufacturers? Looking at the period from January to June 2008, U.S. manufactured exports to Canada amounted to $109.5 billion, while $56.4 billion worth of U.S. goods were exported to Mexico. That represents a $17.5 billion surplus with Canada and a $20 billion deficit with Mexico.

“The overall picture of U.S.-NAFTA trade in manufacturing is highly positive. The trade is roughly in balance with a positive trend which is helping to reduce the global deficit,” explains Ernie Preeg, an economist and senior fellow in trade and productivity at the Manufacturers Alliance/MAPI.

What especially pleases Preeg is the nature of the products that the U.S. is exporting. Automotive, machinery and high-tech products top the list of exports to Canada and Mexico. “These export products are at the heart of high-skilled, higher-paying manufacturing jobs,” explains Preeg. For example, with Canada the United States shows a trade surplus in the areas of both electric and nonelectric machinery and parts, as well as power generating machinery and equipment. Surpluses are also found in specialized machinery, iron and steel and scientific equipment. In Mexico, the United States enjoys trade surpluses in plastics, organic chemicals and miscellaneous manufactured products.

Much of NAFTA commerce is concentrated in automobiles, auto parts and energy. Together these three sectors account for a third of regional trade.

The National Association of Manufacturers (NAM) also views NAFTA in a positive light.

“Free trade is the solution to our trade deficit and not the problem,” says Frank Vargo, NAM’s vice president for international economic affairs. “U.S. free-trade agreement partners continue to be the shining part of the U.S. trade picture, with a rapidly growing surplus.” Supporting that perspective is the fact that NAFTA is the largest export market for 42 states.

Thinking Globally

The 10 NAFTA Priorities

Deloitte surveyed 321 executives of leading North American manufacturing enterprises across product sectors to obtain their perspectives on their current and expected future competitiveness. Of those surveyed, 45% are from the United States, 36% from Canada and 17% from Mexico. Among the companies represented in this survey, 23% had revenues over $1 billion; 15% had revenues between 200 million to $1 billion; and 62%, below $200 million in revenues.

“NAFTA gave companies the opportunity to enter new markets and think globally,” explains Craig Giffi, Deloitte’s vice chairman and U.S. leader for consumer and industrial products. “Executives told us that trade agreements enable companies to improve top-line growth across new markets. The result is that companies that focus on global trade, and thus new customers, outperform their counterparts.” More than two-thirds of the companies surveyed for the report showed revenue growth and bottom-line profit levels that were 5% higher over the last three years.                          

Mexico’s Full Potential Yet to be Reached

As a trading partner Mexico has grown in importance, Giffi points out. “It wasn’t top of mind for key drivers prior to 1992,” he says. But improvements in Mexico through economies of scale and more efficient retail distribution and lower prices have created a strong market for manufacturers.The labor advantage continues to be a strong factor for growth in Mexico. “In addition to considerable wage rate differentials, the workforce is young, hungry and eager,” says Giffi.

And this workforce is very educated, according to George Haley, director of the Center for International Industry Competitiveness at the University of New Haven. “Workers are generally both highly trained and trainable. The education system turns out highly effective managers who also graduate with extensive business networks.”

NAFTA was the driving force behind the increase in transparency in Mexico. The country now has its own version of the Administrative Procedures Act, which allows the public to comment on proposed rules. Aside from helping U.S. and Canadian companies do business in Mexico, the Act has also helped Mexican entrepreneurs.

What is clearly not a competitive advantage for Mexico is the issue of security. “There is a problem doing business with Mexico and that is violence,” explains Haley. This past year in particular has seen a large increase in violent crime.

In fact crime is one of the key factors inhibiting Mexico’s potential. “Mexican growth has been a disappointment: 2.9%, well below its potential,” says Gary Hufbauer, senior fellow at the Peterson Institute for International Economics. “Mexico should grow at 6% a year. However, the Mexican political system has not delivered the tax and energy reforms necessary to fund investments in physical infrastructure, social services and education. Mexico has neither rousted the drug lords nor eradicated the corruption mentality.”

Growth is on its way, though, says Giffi. “Manufacturing is a global chess game. Companies are now rethinking their supply chains and are bringing factories back to North America. This should bring back jobs as well,” explains Giffi.

Bringing back jobs is a sore spot whenever NAFTA is mentioned. “A realistic estimate is that around 60,000 jobs are lost a year because of increased trade with Canada and Mexico, while U.S. exports to NAFTA partners support 70,000 new jobs a year,” says Hufbauer. “Annually the dynamic U.S. economy displaces approximately 17.5 million jobs and creates about 18.3 million new jobs. NAFTA accounts for a small fraction (under 1%) of annual job churn,” he claims.

Automating Trade Compliance

While Mexico is underperforming, the Canadian economy has performed well during the NAFTA era, growing by 3.1%, according to Hufbauer. Canada sends 80% of its exports to its NAFTA partners. Total merchandise trade between Canada and the United States more than doubled between 1993 and 2007. Trade between Canada and Mexico has almost quadrupled over the same period. In 2007, Canada’s merchandise trade with its NAFTA partners reached $598.4 billion. Exports to the United States grew at an annual rate of 6.6% from 1993 to 2007. Canada’s bilateral trade with Mexico reached $22 billion in 2007.

To bolster further the impact of NAFTA, manufacturing companies are automating trade compliance. ” “Global commerce is increasingly shaped by preferential trade agreements to promote trade among countries.  Depending on how the agreements are written – the specific rules of origin – goods can be sourced duty free,” ” explains Nathan Pieri, senior vice president of marketing and product management with Management Dynamics, a provider of global trade management solutions. Pieri says his clients, which include Steelcase, General Electric, Honeywell and Procter & Gamble, are choosing to automate the NAFTA qualification process. For example, Haworth, a $1.4 billion office furniture and interiors manufacturer, was able to realize $1.2 million in duties and taxes by automating the NAFTA qualification process as well as generating trade documentation to maintain export compliance.

Mexico is becoming an increasing popular location for Pieri’s clients as supply chain management and quality issues continue to raise concerns about outsourcing production to China. Pieri sees his clients looking at near-sourcing opportunities and moving back to North America, especially Mexico. “Being able to coordinate the order cycle and ship goods from the same time zone in Mexico is often more cost-effective than trying to do that overseas given the logistic difficulties.”??Indeed, as noted in the “Made in North America” study (see above), manufacturers would strongly prefer North America as a hub for their manufacturing operations “in an ever-expanding global economy if proper investments (both public and private) are made and if government policies focus more on reducing or eliminating competitive barriers.”