Capital Thinking Update - January 28, 2011

    View Author 28 January 2011

    General Legislative

    The House is in recess and will reconvene the week of February 7. The Senate will reconvene at 2:00 PM on Monday, January 31.

    On January 27, the Senate approved several procedural measures, including a standing order curtailing secret holds used to anonymously block legislation and nominations.  Additionally, the Senate approved a standing order eliminating the delay tactic of forcing the reading of an amendment that has already been submitted for 72 hours and is publicly available.  Further, Majority Leader Harry Reid (D-NV) and Minority Leader Mitch McConnell (R-KY) agreed to consider legislation exempting approximately a third of all nominations from the Senate confirmation process, reducing the number of executive nominations subject to Senate delays.  In a colloquy entered into the record, Minority Leader McConnell agreed not to use the constitutional option to seek to change Senate rules “in this Congress or the next Congress.”  Additionally, McConnell agreed to reduce use of the filibuster on motions to proceed, while Majority Leader Reid agreed to reduce the use of “filling the tree” to block all amendments.

    Also on January 27, both Senate Democrats and Republicans announced committee assignments for the 112th Congress.

    Health Care


    • House GOP Health Proposals. Early details are beginning to emerge about House GOP health proposals, including transitioning Medicare into a voucher program that beneficiaries could use toward private health insurance. The proposal was included in House Budget Chairman Paul Ryan’s (R-WI) “Roadmap for America’s Future,” which he released last year, and House Republican Conference Chairman Jeb Hensarling (R-TX) has indicated that the proposal could be part of the GOP’s budget discussions. Democrats have long opposed privatization initiatives for Medicare and Social Security and are already lining up to reject a potential voucher proposal as well.
    • Health Reform Repeal Activities. More repeal measures have been introduced in both the House and Senate, signaling early piecemeal health reform targets. The Senate followed the House in introducing legislation to repeal the entirety of the Affordable Care Act, sponsored by Sen. Jim DeMint (R-SC) and cosponsored by 34 Republicans. Other repeal measures include repeal of the Independent Payment Advisory Board (IPAB) that would offer proposals beginning in 2014 to reduce per capita spending in Medicare, with legislation introduced by Representative Phil Roe (R-TN). Representative Erik Paulsen (R-MN) and Senator Orrin Hatch (R-UT) introduced the Protect Medical Innovation Act that would repeal the anticipated 2.3 percent tax on medical devices that begins in 2013. Senator Hatch also introduced a bill to strike the individual mandate.
    • Senate Judiciary Hearing. The Senate Committee on the Judiciary has scheduled a hearing for February 2 on the constitutionality of the Affordable Care Act.
    • House Judiciary Hearing. The House Committee on the Judiciary is also planning a hearing on the constitutionality of the health reform law, although details have not yet been announced.


    • Berwick Renomination. CMS Administrator Donald Berwick’s recess appointment is set to expire at the end of this year, and President Obama has officially renominated Berwick for the post. Berwick has already been called to Capitol Hill to defend the Affordable Care Act, and oversight hearings are expected to continue through the year setting up what is sure to be a heated confirmation process.


    • Brookings Conference on ACOs.  The Brookings Institution will be holding a public forum to discuss accountable care organizations on Tuesday, February 1. Speakers will include CMS Administrator Donald Berwick and White House Health Reform Director Nancy-Ann DeParle. Regulations have not yet been sent through the clearance process at OMB, but they are expected to be released imminently.
    • Health Reform Lawsuits. Judge Roger Vinson could issue a ruling in the health reform challenge lawsuit brought by 20 states and the National Federation of Independent Businesses (NFIB) as early as next week. The challenge seeks to strike the individual mandate and Medicaid expansions that were included in the Affordable Care Act.

    Financial Services


    • FHFA Nominee Withdraws from Consideration. Joseph Smith, the North Carolina commissioner of banks and President Obama’s nominee for director of the Federal Housing Finance Agency, has withdrawn his nomination from consideration. Mr. Smith was nominated by President Obama in November 2010, but faced resistance from Senate Banking Committee Ranking Member Richard Shelby (R-AL) and other Republicans. Mr. Smith would have replaced Acting Director Edward DeMarco, who has served in such capacity since August 2009.
    • HAMP Repeal Legislation Introduced. Following House Oversight Committee testimony offered by Special Inspector General for the Troubled Asset Relief Program (SIGTARP) Neil Barofsky on January 25, Representatives Jim Jordan (R-OH), Darrell Issa (R-CA) and Patrick T. McHenry (R-NC), introduced the HAMP Repeal and Deficit Reduction Act of 2011(H.R. 430). The bill will be referred to the House Financial Services Committee for consideration.
    • Senate Passes Four-Month Extension of Small Business Programs. On Wednesday, January 26, the Senate approved by unanimous consent a four-month extension of small business programs established under the Small Business Act and the Small Business Investment Act of 1958 (H.R. 366). The Small Business Administration has operated under short-term extensions since October 2006. The most recent extension is set to expire on January 31. Senate Majority Leader Harry Reid (D-NV) recently indicated his intent to introduce a long-term reauthorization proposal for small business programs in the coming weeks.
    • Johnson Officially Named Senate Banking Committee Chairman. On January 27, Senator Tim Johnson (D-SD) was officially named as the chairman of the Senate Banking Committee, assuming the position vacated by former Senator Christopher Dodd (D-CT). Senator Richard Shelby (R-AL) will continue to serve as ranking member.
    • House Financial Services Committee Announces Hearing Schedule. House Financial Services Committee Chairman Spencer Bachus (R-AL) recently announced the committee’s tentative hearing schedule for the next two months. The hearings include:
      • Wednesday, February 9: Monetary Policy and Jobs (Domestic Monetary Policy Subcommittee)
      • Wednesday, February 9: Government-Sponsored Entity (GSE) Reform (Capital Markets Subcommittee)
      • Thursday, February 10: Markup of Committee Oversight Plan (Full Committee)
      • Tuesday, February 15: Implementation of Derivatives Provisions of Dodd-Frank Act (Full Committee)
      • Tuesday, February 15: GSE Legal Fees (Oversight and Investigations Subcommittee)
      • Wednesday, February 16: Financial Crisis Inquiry Commission Report (Full Committee)
      • Wednesday, February 16: Housing Finance (Insurance, Housing and Community Opportunity Subcommittee)
      • Thursday, February 17: Federal Reserve Proposal on Interchange Fees (Financial Institutions Subcommittee)
      • Tuesday, March 1: GSE Reform (Full Committee)
      • Wednesday, March 2: Department of Housing and Urban Development FY2012 Budget (Full Committee) 
      • Thursday, March 3: Federal Reserve Semiannual Report on Monetary Policy (Full Committee)
    • Senate Judiciary Committee to Discuss Foreclosures. On Tuesday, February 1, the Senate Judiciary Committee will hold a hearing titled, “Foreclosure Mediation Programs: Can Bankruptcy Courts Limit Homeowner and Investor Losses?”


    • SEC Dodd-Frank Rulemaking Open Meeting. On Wednesday, February 2, the Securities and Exchange Commission will hold an open meeting to consider proposed rules relating to the implementation of the Dodd-Frank Act. The SEC is expected to consider proposed rules related to the registration and regulation of security-based swap execution facilities.


    • Treasury GSE Report Delayed Until February. The anticipated Treasury Department report on GSE reform will be delivered to Congress after the statutory deadline of January 31. The report is expected to be published in the first half of February, following the release of President Obama’s budget.




    • Congressional Assignments. The Senate Commerce Committee welcomed five new members last week. The newly expanded roster of 12 Republicans (up from 11 last year) includes Senators Roy Blunt (R-MO), John Boozman (R-AK), Pat Toomey (R-PA), Marco Rubio (R-FL) and Kelly Ayotte (R-NH). All of the Democratic committee members returned, except for one, leaving the majority at 13 members. The committee lost retiring Senator Byron Dorgan (D-ND).
    • National Wireless Broadband. Wireless companies were winners in President Obama’s State of the Union speech, with the President calling for the expansion of the next generation of wireless coverage to 98 percent of Americans within the next five years. Last year, wireless and broadband service providers urged Congress and the Federal Communications Commission (FCC) to give them greater access to more spectrum for 4G services and mobile networks. However, a win for the wireless industry concerns television broadcasters that now occupy a large portion of those airwaves. The FCC has proposed reclaiming broadcasters’ spectrum in order to auction it off to wireless companies. If the FCC secures congressional approval to move forward with auctions, broadcasters will receive a share of the auction proceeds if they voluntarily turn in their spectrum. Leaders of the House Energy and Commerce Committee are expected to introduce a spectrum bill early this year, which may include a proposal for incentive auctions of broadcast spectrum. The plan is not supported by the broadcasting industry, which is concerned about the government’s approach to taking its valuable resource.
    • Public Safety. The White House is supporting the direct allocation of a prime portion of airwaves for a public safety network. A White House official confirmed last week that the President supports directly allocating 10 MHz of spectrum for first responders. President Obama alluded to the plan in his State of the Union address, when he called for a wireless broadband push that would allow “a firefighter … [to] download the design of a burning building onto a handheld device.” That commitment has support from many Senate Democrats and Republicans, but still faces political challenges from some members of the House Energy and Commerce Committee, who have yet to decide whether the so-called “D block” should be auctioned for commercial use or rededicated to public safety. In its 2012 budget to be released the second week in February, the Administration is expected to provide details of the plan and to recommend that between $10 billion and $13 billion be appropriated to construct a nationwide public safety network, $10.5 billion of which would be reserved for the network from incentive auctions, according to public safety and industry sources. That approach is consistent with legislation introduced last week by Senate Commerce Chairman Jay Rockefeller (D-WV), the Public Safety Spectrum and Wireless Innovation Act (S. 28). In addition to allocating the D block for public safety use, S. 28 would provide the FCC with incentive auction authority to allow existing spectrum licensees to voluntarily relinquish their airwaves in exchange for some of the proceeds of the commercial auction of their spectrum. In addition, the funds from these incentive auctions, in conjunction with funds from the auction of other specified spectrum bands and funds earned from leasing the public safety network on a secondary basis, will be used to fund construction and maintenance of the nationwide, interoperable, wireless broadband public safety network.

      House Homeland Security Chairman Peter King (R-NY), a leading advocate of giving the D block directly to public safety, is expected to reintroduce his bill and commended the President’s plan.  Yet, the Administration’s proposal diverges from the recommendations of its own FCC. The FCC had argued the D block should be auctioned. The prevailing estimate says the D block auction could raise between $2 billion and $3 billion. Wireless carriers are split on the issues, with some supporting commercial auction of the spectrum with the hope of securing greater capacity for 4G communications, while others favor allocation to public safety.
    • Regulatory Reform. On January 26, Representative Cliff Stearns (R-FL), Chairman of the Energy and Commerce Committee’s Subcommittee on Oversight and Investigations, held a hearing to examine President Obama’s new Executive Order to review regulations with a focus on reducing their burden. The hearing’s sole witness was Cass Sunstein, Administrator for the Office of Information and Regulatory Affairs, Office of Management and Budget.  Chairman Stearns noted the FCC’s “overreach” on net neutrality rules, and Sunstein confirmed the President's Executive Order does not apply to independent agencies, including the FCC, the Federal Trade Commission and the Federal Energy Regulatory Commission among others. As a result, Full Committee Chairman Fred Upton (R-MI) suggested the approach be amended to include such agencies. Communications Subcommittee Vice Chairman Lee Terry (R-NE) focused his line of questioning on the FCC. Sunstein offered that the President hoped the independent agencies would comply with the Executive Order.
    • Patent Reform. Following the President’s call to focus on innovation in his State of the Union address, Senate Judiciary Committee Chairman Patrick Leahy (D-VT) fast tracked his patent reform legislation by scheduling a vote on it for Thursday, February 3. Leahy and other lawmakers have been working on reform legislation since 2006. The legislation is similar to that which Leahy tried to pass last year. Many tech companies are concerned about the measure, which some believe would worsen existing law. The legislation would streamline the process for reviewing and challenging patents, among other proposed reforms to the patent system.


    • FCC Open Meeting. At its January 25 monthly open meeting, the FCC adopted an Order and Further Notice of Proposed Rulemaking (FNPRM) to create a nationwide interoperable public safety network. The FNPRM seeks public comment on, among other things, interconnectivity between networks; network resiliency; architectural vision of the network; security; roaming and priority access between public safety broadband networks; and interference coordination. Deadlines for public comments and reply comments are 45 days and 75 days, respectively, following publication in the Federal Register.
    • February 8 Meeting. Among the items the FCC will consider at its February 8 open meeting are a Notice of Proposed Rulemaking (NPRM) to get broadband to rural America, spur investment and job creation, by modernizing the Universal Service Fund and intercarrier compensation (ICC) system. The NPRM proposes near-term support for broadband deployment in unserved areas and measures to address ICC arbitrage, as well as a long-term transition from current high-cost support and ICC mechanisms to a single Connect America Fund.




    • New Senate Finance Committee Members. Democrats have appointed Senator Benjamin Cardin (D-MD) to serve on the Senate Finance Committee, while Republicans appointed Senators Tom Coburn (R-OK) and John Thune (R-SD). Appointment of these new members results in a committee ratio of 13 Democrats to 11 Republicans.
    • Form 1099 Repeal. Several measures have been introduced to address the Form 1099 reporting requirement contained in the health care law. On January 25, Senate Finance Committee Chairman Max Baucus (D-MT) and Majority Leader Harry Reid (D-NV) reintroduced legislation to fully repeal the new Form 1099 information reporting mandate, with no offset for the measure proposed.  On the same day, Senators Mike Johanns (R-NE) and Joe Manchin (D-WV) introduced separate legislation to repeal the Form 1099 rules, paid for with $39 billion in federal spending rescissions. The Senate Democratic leaders’ bill is identical to a measure introduced by Representative Dan Lungren (R-CA), which already has enough cosponsors to pass the House.


    • New Offshore Account Disclosure Program. The IRS recently announced plans for another voluntary disclosure program, which would allow taxpayers to disclose offshore financial accounts on which no U.S. tax has been paid. At a January 25 conference sponsored by the University of Southern California's Gould School of Law, an IRS official stated that the IRS Criminal Investigation Division (CI) will assist in this effort. Unlike the previous effort, CI will no longer serve as the central processing location for applications to the program (the IRS office in Philadelphia will serve this function), though CI will continue to serve as the entry point for applications. The IRS has not made a formal announcement on this second disclosure initiative. The previous voluntary disclosure program, which ran from March through October 2009, resulted in approximately 15,000 disclosures, with an additional 3,000 disclosure following the end of the program.
    • FATCA Guidance. At a January 21 conference, a Treasury official offered insight into the IRS' approach to guidance under the Foreign Account Tax Compliance Act (FATCA), enacted as part of the Hiring Incentives to Restore Employment Act. The official stated that guidance should be forthcoming in the first half of 2011 and urged practitioners representing the U.S. fund industry to submit comments regarding entity account identification (as discussed in Notice 2010-60, released last year). When asked why Treasury has not released rules exempting widely held funds from treatment as foreign financial institutions under the FATCA rules, the Treasury official indicated the agency is considering whether and under what circumstances these funds might be exempt. Treasury officials at the conference assured practitioners that the guidance will be released well before the effective date for the FATCA rules.

      Earlier this month, the IRS indicated that it intends to use slightly modified versions of the existing withholding forms (e.g., Form W-8BEN) to implement and carry out the FATCA rules. The IRS is also attempting to use a new Internet-based system for reporting of withholdable payments, facilitating compliance with the FATCA requirements. According to an IRS official, the IRS estimates that approximately 100,000 foreign financial institutions could be subject to the FATCA rules, noting, however, that the goal of the FATCA regime is increased reporting rather than actual withholding.


    • State of the Union Address. In his State of the Union address, President Obama called on Congress to work in a bipartisan manner to reduce the corporate tax rate in a revenue-neutral manner. He also requested Congress make permanent the American Opportunity Tax Credit, which provides up to $2,500 per student per year for qualified tuition and related expenses for each of the first four years of post-secondary education in a degree or certificate program. Further, the President requested a five-year spending freeze on all non-security discretionary spending. Finally, President Obama indicated that the country could not afford a permanent extension of the tax cuts for the wealthiest 2 percent, an indication that he will fight to end the tax cut for those couples making more than $250,000 ($200,000 for individuals).




    • Oil Spill Response. The President’s Oil Spill Commission Co-Chairs William Reilly and Bob Graham appeared before the Senate Energy and Natural Resources Committee and the House Natural Resources Committee this past week to discuss recommendations from their investigation of the Deepwater Horizon accident. While Senate Committee Chairman Jeff Bingaman (D-NM) said the report would help improve upon bipartisan legislation his committee favorably reported last year, House Committee Chairman Doc Hastings (R-WA) cautioned against rushing to judgment before all investigations have been completed. Leading House Democrats have already introduced legislation to implement a bulk of the commission’s recommendations. Additional congressional hearings are expected as the commission seeks congressional support for regulatory improvements and dedicated and long-term funding for Gulf restoration; industry is likely to seek a chance to respond to the report’s findings that there is a “systemic” safety problem throughout the industry.
    • Energy Outlook. The Senate Energy and Natural Resources Committee will hear testimony on February 3 regarding the energy and oil market outlook for the 112th Congress.


    • State of the Union Address. Shortly after the mid-term elections, the President began talking about trying to enact more discrete elements of his broader renewable energy agenda. During his address, he provided more details about his revamped priorities; for example, he again called on Congress to support legislation that would put one million electric vehicles on the road by 2015, and rather than asking Congress to adopt a comprehensive climate change bill, he instead urged enactment legislation that would increase the percentage of electricity generated from “clean energy” sources to 80 percent by 2035. We think the President can achieve much of his renewable energy agenda, but only if he reaches out to the new Republican House majority and works with moderates in the Senate. Rather than allow the EPA to create its own regulatory structure, the 112th Congress might conclude that the time is right for a market-based alternative approach. Thus, perhaps ironically and contrary to conventional wisdom, we believe that the prospects for legislation that would reduce greenhouse gas emissions have actually increased as a result of the shift to a Republican majority in the House and Republican gains in the Senate. But before reaching that point, Republicans (and coal state Democrats) in particular may seek to use the appropriations process or other approaches, such as the Congressional Review Act, in an effort to block EPA regulations and force the debate to a different plane. Without action by Congress (or the courts), more proposed regulatory initiatives can be expected as the President seeks to implement his renewable energy agenda. For that reason, Congress may seek to achieve business certainty through enactment of legislation that provides flexibility and promotes economic growth. That kind of legislation – combined with other parts of the President’s renewables agenda – could mark a major accomplishment for the President and the new Congress.




    • Drinking Water. On Wednesday, February 2, the Senate Committee on Environment and Public Works intends to hold a hearing titled, “Oversight Hearing on Public Health and Drinking Water Issues."  The hearing will primarily focus on the issue of chromium-6 in drinking water. Hexavalent chromium is prevalent in the drinking water of 31 cities across the country. Water samples from 25 cities contain the toxic metal at concentrations above a potential safe maximum. The Department of Health and Human Services' National Toxicology Program has concluded that hexavalent chromium in drinking water shows "clear evidence of carcinogenic activity" in laboratory animals. The EPA's draft toxicological review has found that the contaminant in tap water is "likely to be carcinogenic to humans."  Currently, there are no enforceable federal standards to protect the humans from hexavalent chromium in drinking water.
    • Disaster Preparedness. Also on Wednesday, February 2, the Senate Committee on Homeland Security and Government Affairs intends to hold a hearing titled, “Catastrophic Preparedness: How Ready is FEMA for the Next Big Disaster?” This hearing comes on the heels of the recently passed Pre-Disaster Mitigation (PDM) grants reauthorization bill, which is now law. The program is a grants program for state and local governments to help prevent damage due to natural disasters before they happen. A 2007 Congressional Budget Office report found that $1 invested in mitigation provided roughly $4 in benefits. We expect the grants program to benefit state and local governments grappling with the costs of hurricanes and related natural disasters.
    • BP Oil Spill. Ranking Member Ed Markey (D-MA) of the House Natural Resources Committee and Ranking Member Henry Waxman (D-CA) of the House Energy and Commerce Committee are proposing legislation that incorporates recommendations from the National Commission on the BP Deepwater Horizon Oil Spill. Congressman Rush Holt (D-NJ), Ranking Member of the House Committee on Natural Resources Subcommittee on Energy and Mineral Resources, introduced legislation that would eliminate the liability cap for oil spill accidents. House Republicans have indicated they may be willing to consider safety legislation, as long as new offshore drilling would be allowed.


    • Ozone. Of interest to state and local governments, the EPA will hold two conference calls with its science advisors on February 18 and March 3 to discuss the reconsideration of the ozone standard. Under reconsideration is EPA’s health-based ozone standard, which ranges between 0.060 part per million (ppm) and 0.070 ppm. The original final rule on the reconsideration was due in December, but it has since been set for a July release.
    • Mining. Of interest to mining facilities, EPA has issued a Notice of Public Rule Making (NPRM) regarding metal mining reporting. Currently, the Toxics Release Inventory (TRI) requires reporting from metal mining facilities if they manufacture or process 25,000 pounds or more of a listed chemical or otherwise use 10,000 pounds or more of a listed chemical. These mining facilities engage in the removal of naturally occurring materials from the earth.

      EPA had considered naturally occurring materials to be manufactured by natural processes. A recent court order set aside EPA's interpretation of manufacture in the mining context, stating that naturally occurring ores in situ have not been manufactured within the meaning of the Emergency Planning and Community Right to Know Act (EPCRA) section 313. EPA is considering clarifying how definitions of manufacturing and processing under EPCRA section 313 apply to the mining sector processes of extraction and beneficiation. This action will not affect the coal extraction activities exemption.


    International, Defense, Homeland Security

    • Trade Developments. President Obama’s State of the Union address pleased many advocates for the pending U.S.-South Korea Free Trade Agreement (KORUS FTA). The President called for Congress to pass KORUS as soon as possible, stating the FTA will support at least 70,000 new domestic jobs and crediting the Administration and the South Korean government for agreeing to updated terms in December that will expand U.S. auto access in the Korean market. However, Senate Finance Committee Chairman Max Baucus (D-MT) and House Ways and Means Committee Chairman Dave Camp (R-MI) faulted President Obama for not also establishing a timeline for enactment of the pending FTA with Colombia. Senator Baucus may be unique among congressional Democrats in supporting the Colombia FTA more than the Korea agreement, given the senator’s complaints about insufficient U.S. access to the Korean beef market. As he indicated at a Ways and Means hearing on trade on Tuesday, Chairman Camp and other committee Republicans simply want rapid action on all three pending FTAs, also stressing the stalled agreement with Panama. Not surprisingly, committee Democrats were more conflicted at the hearing, but Ranking Member Sander Levin (D-MI) and Congressman Charles Rangel (D-NY) espoused the benefits of KORUS and defended their and the Administration’s recent actions on trade policy. Congressman Levin also suggested a possible path forward for passing the Panama and Colombia agreements with some Democratic support. Meanwhile, on Wednesday, Senate Finance Trade Subcommittee Chairman Ron Wyden (D-OR) reported updated findings from the U.S. International Trade Commission signaling that KORUS may create or support approximately 280,000 new jobs, compared to the previously-reported 70,000, and add $27 billion to U.S. Gross Domestic Product, compared to the previously-reported $11-13 billion. In addition, U.S. and Korean negotiators agreed on the revised legal text of KORUS, clearing the way for a signing of the updated agreement in mid-February and official submission to Congress by March. The Administration is expected to provide additional details on its timeline for KORUS and the Panama and Colombia agreements when President Obama speaks to the U.S. Chamber of Commerce on February 7, and when U.S. Trade Representative Ron Kirk testifies before the House Ways and Means Committee in mid-February.
    • Middle East Developments. The uprising in Tunisia has spurred public protests in Egypt, Yemen, Lebanon and now, Jordan. The potential outcomes, and the U.S. interests at stake, vary widely in each case. In Egypt, President Mubarak seems to be employing almost every available tool for retaining power by force, but his government’s crackdown has only further inflamed the protest movement. Moreover, the regime’s cutting off of media and communications outlets appears to have hardened the resolve of international reporters from CNN and elsewhere to relay the story on the ground. Some analysts, including most in Israel, believe President Mubarak will weather the storm, but the Obama Administration has hedged its bets by switching to a two-track strategy: supporting the democratic aspirations of the Cairo street while encouraging the Mubarak government, a longtime U.S. ally, to reform from within and quickly. The question remains what a post-Mubarak Egypt would look like. The United States certainly could work with a government, interim or otherwise, led by opposition leader Mohammed ElBaradei, the former head of the International Atomic Energy Agency. However, the breadth and depth of ElBaradei’s support, including in comparison to much more radical elements of the anti-Mubarak Egyptian political scene, are uncertain. In Yemen, while President Saleh’s longtime government has been imperfect at best, the regime has battled al-Qaida and other extremist elements, and the alternatives appear much more unsettling. One such alternative includes a Somalia-style dysfunctional state in Yemen. In Lebanon, the new Hezbollah-supported government faces heavy opposition from domestic Sunnis, other Sunni-led Arab states and the West, but again, possible alternatives of governmental dysfunction or civil strife are also unpalatable. In Jordan, the greater degree of political breathing room under King Abdullah has allowed for a more developed civil society, which, from the perspective of the ruling government and its ally the United States, could cut both ways in the days and weeks ahead.