This is a rush transcript from "Journal Editorial Report," September 14, 2013. This copy may not be in its final form and may be updated.
PAUL GIGOT, HOST: This week on the "Journal Editorial Report," President Obama stands down. A look at what his Syria retreat means for his standing in the world and America's.
Plus, five years after the financial crisis, what lessons have we learned and is our banking system any safer?
And fracking and the poor. Why our natural-gas boom may be America's best anti-poverty program.
(BEGIN VIDEO CLIP)
PRESIDENT BARACK OBAMA: This initiative has the potential to remove the threat of chemical weapons without the use of force, particularly because Russia is one of Assad's strongest allies. I have, therefore, asked the leaders of Congress to postpone vote to authorize the use of force while we pursue this diplomatic path.
(END VIDEO CLIP)
GIGOT: Welcome to the "Journal Editorial Report." I'm Paul Gigot.
That was President Obama Tuesday announcing that he would explore a diplomatic solution to the crisis in Syria, mediated by the Russians before moving ahead on a congressional vote on the use of force. But after weeks of his administration urging military action against the government of Bashar al-Assad, what does this retreat mean for the president's standing in the world and America's standing?
Let's ask Wall Street Journal columnist and deputy, Dan Henninger; Washington columnist, Kim Strassel; and foreign affairs columnist, Bret Stephens.
Dan, you described this this week as the Laurel-and-Hardy presidency - -
Not kind words. How would you sum up this week?
DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: The Laurel-and-Hardy presidency. Beyond that, I would say it's been really a presidency bouncing off the walls. Barack Obama, we just heard him say has now proposed if they dispose of Assad's chemical weapons, then we will have that problem behind us. One has to wonder who exactly he consulted on this subject. Chemical weapons are one of the most -- acting as though these are boxes of books in Assad's library.
In fact, it's one of the most complicated substances in defense policy. We read the Wall Street Journal. It's had a wonderful front- page story about something called Unit 450 in Syria, a very highly sophisticated group in the Syrian army, which is dispersing the chemical weapons to 50 different sites. The idea that we're going to somehow find them and dispose of them is really, as we say, feckless. So one wonders whether the president is simply acting on ideas as they enter his mind.
GIGOT: But the argument from the White House is that this was actually brilliant diplomacy. I'm not making this up. That's what they are saying. Because they're saying that now he can get rid of the chemical weapons without having to go to war, for example, and solve the problem.
BRET STEPHENS, FOREIGN AFFAIRS COLUMNIST: Yeah, well, that's what the White House would like to think. And its handmaids in the media are certainly pushing that line. In that reality -- you remember how Tony Blair used to be described as Bush's poodle? Well, now, the president of the United States is Vladimir Putin's poodle. He might even be Assad's poodle because this is going -- whatever resolution there is will have to be negotiated. And the Russians and Assad will be making demands. We've been seeing Assad saying, my demand is that there be no arming of the Syrian rebels and no intervention. So we're going to get into this bizarre, sort of Middle Eastern bizarre --
STEPHENS: This bizarre bazaar, if you will, in which the United States will be held hostage to the whims of a tyrant who is gassing his own people and his patron in Moscow who now presumes to write op-eds in "The New York Times" dictating to the American president what he may or may not say in speeches.
GIGOT: That's, Kim, what is so striking. The day after all of this went down, the president went on national TV to say, Vladimir Putin's good offices have now been opened to the United States. Putin runs this op-ed in the United States essentially beating up Obama. I don't think there is any other way to describe it. Essentially, humiliating an American president, taking him to task for saying that he used the phrase "American exceptionalism." America is not exceptional any more than anybody else. And saying -- essentially, humiliating him. What do you make of the reaction to all of this in Washington?
KIM STRASSEL, WASHINGTON COLUMNIST: Well, here's the problem. We've talked about how Obama was doing all this because he was in a box. He put himself in a bigger box. Despite his speech, he went on national television and made the case for why we might need to still use force against Syria. He has given Congress an exit here. And there is very little chance, if this does not work out with Russia, that Congress will take back up a vote and actually vote to -- they were opposed to doing this anyway. Now they see absolutely no reason to.
And having talked to members of Congress, both parties see him as -- they did not view this as a diplomatic stroke of genius. This could hurt him in other regards, too.
GIGOT: So what you are saying is you think there is little likelihood that the president will, at the end of this, go back to Congress and say, well, the negotiations failed, we need to now act against Syria.
STRASSEL: People were already opposed to giving him that authorization. What he has now done is allowed Congress to run for the exits. What you are seeing are people talking about -- even prior to his speech, even prior to this offer from Putin, people in Congress were talking about, well, maybe what we ought to do is have a vote on legislation, for instance, that requires Assad to surrender his chemical weapons in 45 days. Everyone in Congress is now themselves looking at the diplomatic options.
GIGOT: On this point that you mentioned, Bret, about the bizarre being opened, we have already seen Assad saying, look, I'm not going to agree to give up my chemical weapons unless you stop arming the Syrian rebels and essentially repudiate any future possibility of the use of force. So these negotiations could go on a very long time.
STEPHENS: And people are taking notice all over the world. I think there is a palpable sensation if Europe, in Asia, and particularly in the Middle East, that this administration is weak, this administration can be had and this administration is addicted to its own conceits. You remember the Carter administration response to the Soviet invasion of Afghanistan, send F-15s to Saudi Arabia, but didn't arm them, that kind of weak signal that deeply troubled our allies in the region.
STEPHENS: And if you were sitting in Riyadh as a decision-maker or in Jerusalem as a decision-maker, you're looking at an American presidency with 40 months left to go and worrying seriously about what will happen next in the absence of any fixed American guarantee.
GIGOT: Is there a way the American can retrieve this, Dan? I mean, do you see it? I have to say, I have been covering foreign policy and for a long type, I have never seen a fiasco like this from a U.S. president.
HENNINGER: I agree. I think the only way that he can retrieve it is if he stops running foreign policy in his own mind and brings in some people to consult with and advise him on a larger strategy. He has to understand what a mistake this was. But this president seems incapable of --
GIGOT: How do you retrieve it, Bret?
STEPHENS: Well, look, one of the things he do is simply say, we will have a red line, there's a 10-day deadline and these are my demands, and if they're not met, I will act against Syria, whether Congress likes it, whether Putin likes it and whether Assad likes it.
GIGOT: What do you think the chances are that --
STEPHENS: What makes matters worse is there are no adults in the room. You look at President Obama's cabinet, do you see in Kerry or Chuck Hagel or Martin Dempsey serious people?
GIGOT: Look, I would say in defense of Kerry that he actually wanted to do something. But I think the problem is the president is operating it, and he runs this thing himself, and that's why he gets into these mistakes. One of the reasons.
All right, thank you.
When we come back, lessons from the financial meltdown. Five years after the Lehman Brothers collapse, is our banking system any safer and is "too big to fail" a thing of the past?
GIGOT: This Sunday marks the fifth anniversary of the day that investment giant Lehman Brothers filed for bankruptcy, touching off a financial meltdown that brought the U.S. economy to its knees. Five years on, what lessons have we learned from that time and is our banking system any safer?
We are back with Dan Henninger and Kim Strassel. And Wall Street Journal assistant editorial page editor, James Freeman, joins us.
So let's ask that fundamental question, which I guess is the main issue here, five years later, are we safer from another meltdown?
JAMES FREEMAN, ASSISTANT EDITORIAL PAGE EDITOR: We wish. We'd like to say that we are. But absent a few minor reforms, reducing the role of credit ratings, maybe we'll see some reduction in the amount of debt banks can take on. Basically, what we've had is a codification of the 2008 bailouts of Wall Street. Now firms are officially, systemically important, an implicit "too big to fail" label.
GIGOT: But wait, now, there has been more capital standards that have been raised. Banks have to keep more capital, which is a buffer between them and trouble. I think that's an improvement, isn't it?
FREEMAN: Well, we'll see. That's not entirely clear yet how that finishes up. But I think that assumes that regulators know the right amount of capital and they've set the right rules on what counts as in terms of the risk of certain assets. A lot of variables there. What is really amazing is if you think of the outrage back in 2008, taxpayers finding out, we're standing behind investment banks, Bear Streans, we are standing behind Wall Street trading. And now --
GIGOT: Bear Stearns did go under?
FREEMAN: Well, no, there was a rescue of the creditors and a partial rescue of the shareholders. They let Lehman go, yes, but AIG, obviously an intervention, all the other banks. We now have the taxpayer explicitly behind Wall Street derivatives trading at clearinghouses.
HENNINGER: But, you know, Paul, five years later, it feels safe. But maybe it's too safe because, over those five years, we've had a growth rate of about 2 percent. It should be 3 percent. There is a sense in which the banks, the lending industry are simply supporting the status quo. Very formulaic lending. There is no real lending to new dynamic ventures would increase productivity and create new jobs. If we are going to have long- term growth at 2 percent, we may be safe but we will be very sorrowful I think.
GIGOT: No financial innovation --
HENNINGER: No financial or business innovation.
GIGOT: The other thing, Kim, that has not happened is any reform of Fannie Mae and Freddie Mac, the big mortgage giants that combined private profit with public risk. Those things were put into conservatorship and they're still in existence. And now they're able to make money again, which gives Congress the ability to spend that money and less impetus to reform. Any prospect that those will be changed?
STRASSEL: No. This gets to the risk that James was talking about, about having labeled all of these banks as systemically -- having to back them so that they cannot fail. Fannie and Freddie were at the heart of this crisis. They were political creatures. And part of the reason we had this is because government exerted pressure on them to make loans to people who were not qualified to pay them back. When the crisis hit, it was an excellent opportunity to put them into receivership. Instead, we put them into conservatorship, as you said, where they are now coming back from the dead to haunt the private markets again. And while the White House has said they want to wind these entities down, and while Congress has various proposals, even those proposals they have for winding them down replace them with yet other government entities that would be involved in the private mortgage market.
The problem we have here is that we are now creating an even bigger pool, too --
STRASSEL: -- with banks, with clearinghouses, with insurers that are getting an implicit federal backstop and inviting politicians to meddle.
GIGOT: And to be fair with the White House, they're not the only -- I mean, the president has said he would like to do away with Fannie Mae and Freddie Mac. But the housing lobby has its tentacles on both parties in Congress. It's very hard for them to resist the home builders, the realtors, the mortgage brokers, the whole panoply of lobbyists.
FREEMAN: Yeah, they're very strong. It is shocking to think, five years later, the government is actually standing behind more of the mortgage market after that --
GIGOT: What is it, 90 percent?
FREEMAN: About 90 percent of all --
GIGOT: The mortgages.
FREEMAN: And you remember how -- only government really could create a problem like 2008 where normally there is the pricing mechanism, there is a diversity of investments. Investors, sure, they're prone to irrational exuberance, but there's a lot of options in the market. It's only when government says housing, housing, housing. Incentives for individuals, for investment banks, for everyone to get into this market. That's one of the reasons the price was so difficult to deal with.
GIGOT: The biggest reform was Dodd-Frank, which is was basically operated on a premise that the regulators who missed the last crisis, not to mention all previous crises, will be so much smarter with new power that they'll predict the next one. That's the premise.
GIGOT: It's -- and they have more power.
GIGOT: But, likely to happen?
HENNINGER: I don't think it's likely to happen. Regulators, by definition, look into the rear-view mirror. And this was a bubble. It was a housing bubble. What is the one biggest financial phenomenon out there right now? It's the Fed's zero-interest-rate policy, which has run for four years, the greatest monetary policy experiment in history. And as soon as they talk about tapering, the market comes down. If things go bad with that, are the regulators going to jump on the Feds back? Don't count on it.
GIGOT: Good question. We'll wait and see.
When we come back, fracking and the poor. Why America's natural-gas boom may also be its best anti-poverty program.
GIGOT: Well, it turns out that America's oil and natural-gas boom may wind up being its best anti-poverty program as well. According to a pair of recent studies, lower utility bills have led to a windfall for American consumers, especially the poor, helping to add an average of $1,200 to real household disposable income last year alone.
"Wall Street Journal" editorial board member, Joe Rago, joins us with some of the details.
Joe, give us the details here. What do the studies show?
JOE RAGO, EDITORIAL BOARD MEMBER: Right. Well, what happened is gas incentives from $7 to $2 or $3. Those lower raw-material costs have been passed down the energy chain --
GIGOT: This is not gasoline. This is natural gas.
RAGO: This is natural gas, largely from America's fracking renaissance.
RAGO: And as in terms of lower home heating bills, utility, electricity bills, lower prices for goods and services, those gains have been reaped by consumers. And $1,200 in real disposable income added in 2012.
GIGOT: This is real technological innovation. Fracking is a new kind of drilling. Horizontal drilling -- instead of drilling a hole straight down, it allows people to drill and go across for hundreds of yards or even farther to find new -- in miles -- to find new sources of energy.
Kim, what's the political consequence of this kind of study, this kind of news in Washington? I would think the people who care about the inequality issue, in particular, with is a whole lot of folks down if your neighborhood, are -- they'd rejoice at this.
STRASSEL: Well, you would think so, especially when you look at other comparisons here. One of these studies showed that the lowering of natural gas prices took about $10 billion off the household bills of low-income Americans. Now, compare that, for instance, for one of the federal government's biggest programs to help the poor called the Low Income Home Heating Assistance Program (sic), LIHEAP. We've spent about $3.6 billion in subsidy payments to low-income Americans to assist with their heating bills. So, in essence, fracking and lower natural gas prices did three times more for these people than the federal government program.
Now, I think there are a lot of Republicans who see this. They have been very forceful about trying to get, for instance, the federal government to not crack down on fracking on federal lands. And they're also encouraging their home-state governors to do this. But, you know, Democrats, they are very much in thrall often to the environmental community, which continues to hate these fracking operations.
GIGOT: And another benefit here, Joe, is -- the benefit of lower natural gas costs, is to make American manufacturing industries more competitive, some more jobs stay here in the United States.
RAGO: Right. And it's led to a manufacturing resurgence in places like rural Pennsylvania and Youngstown, Ohio. These are often poor, depressed areas. This is leading to more jobs, far more than the 47 federal job-training programs, for instance, and really a boon for a lot of displaced workers.
GIGOT: And, Dan, miracle of miracles, even California --
GIGOT: -- Governor Jerry Brown is saying, you know what, maybe we ought to investigate our own natural gas reserves using this new technology.
HENNINGER: Well, California's legislature voted this week in a way that might allow fracking. That is a miracle.
Meanwhile, at the other end of the country, in New York State, where they have a moratorium on fracking, Chesapeake Energy announced this week it is throwing in the towel on 13,000 acres of leases that they have. They're leaving the state and no other energy companies are interested in coming into New York State, which may be the caboose on the fracking train.
GIGOT: So who is behind this moratorium?
HENNINGER: Well, Andrew Cuomo will not lift the moratorium --
GIGOT: The governor?
HENNINGER: -- because it is -- the governor. He is opposed by Bobby Kennedy Jr, Yoko Ono, Lady Gaga and Matt Damon. In every single story on this, those four people are listed as the primary opponents of fracking in New York.
GIGOT: And Governor Cuomo, Andrew Cuomo will not stand up to them. Even despite the economic benefits to a New York upstate in particular. This is a way for New York City that has been on hard economic times for a long -- for many years.
HENNINGER: And I'll tell you, Paul, some of those towns up in upstate New York look like East Berlin during the Cold War. They are devastated. They are dying to try to get access to this energy.
GIGOT: All right. A very sad story.
We have to take one more break. When we come back, "Hits and Misses" of the week.
GIGOT: Time now for "Hits and Misses" of the week.
Bret, first to you.
STEPHENS: This is a hit for Pope Frances, who this week took possession of the new pope-mobile. It has 186,000 miles on it. It's a 1984 Renault, the gift of a priest from Verona who had used it to minister in some of the rougher neighborhoods of his city, and handed it to the pope. We've gotten used to popes moving around in huge motorcades. This is a pope who now drives around Rome in a Ford Fiesta and even humbler cars, as you can see. I think it's a good sign about the pope and a good thing for the church.
GIGOT: All right.
RAGO: Paul, it is a hit for once for New York City Democrats who know a sociopath when they see one, or two.
This week, Eliot Spitzer lost his bid for comptroller and Anthony Weiner for mayor. Now that they are returned to private life, hopefully for good, hopefully our politics will be healthier or at least less lewd.
FREEMAN: Well, I thought this was going to be a miss but now I think it's a hit to the AFL-CEO for truth in advertising. At their convention this week, the big union voted to allow for lots of new members, who don't actually work in places that are unionized and could even students, not in the work force at all. Sort of like the brothers of Delta Tow Kai (ph). This big union needs big dues, declining membership. So I think this is going to be helpful. Because it's going to make clear unions are less and less about speaking for blue collar people, and more about being left-wing political organizations.
GIGOT: But basically, what they're saying is you could donate --
GIGOT: -- to the AFL-CIO. You can join our club. Do you get a mug? Do you get a T-shirt?
FREEMAN: A tote bag.
GIGOT: Is it like a PBS fun ride?
FREEMAN: Well, it's a good question. And -- what's in it for the AFL-CIO? But why would you want to be a dues payer? Probably because you have a political axe to grind.
GIGOT: All right.
Remember, if you have your own "Hit or Miss," please send it to us at jer@FOXnews.com. And follow us on Twitter at JERonFNC.
That's it for this week's show. Thanks to my panel. Thanks for watching. I'm Paul Gigot. Hope to see you right here next week.
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