DRIVING THE DAY

WHERE WE ARE … THE GOVERNMENT is going to shut down at midnight. … DEFENSE SECRETARY JIM MATTIS resigned, essentially saying that, after four decades of military service, much at the highest levels, he has made the determination that he cannot represent PRESIDENT DONALD TRUMP’S worldview. Allies and members of Congress were shaken by the announcement … THE PRESIDENT is pulling the military out of Syria and mulling a plan to withdraw thousands of U.S. troops from Afghanistan against the wishes of military brass, and policymakers.

… THE MARKET is near free fall. The S&P is down nearly 17%, erasing a meaningful portion of the gains since the election.

Happy Friday. FIRST IN PLAYBOOK -- NANCY PELOSI will sit down with MSNBC’s JOY REID on Jan. 4 at her alma mater, Trinity Washington University, for a town hall that will air at 10 p.m. that evening. The vote for speaker is Jan. 3.

THE STEP BACK -- ANDREW RESTUCCIA, “Trump stuffs political grenades in Washington’s Christmas stocking: The president’s moves on a border wall and military operations stun the political establishment, cost him a defense secretary — and trigger ‘one of the most chaotic weeks that we’ve ever seen in American government.’”

WHAT WE EXPECT TODAY -- THE SENATE will gavel in at noon, and, at some point thereafter, will begin consideration of the stopgap funding bill that the HOUSE passed. It will fail in the Senate -- there is zero doubt about that.

THERE IS A CHANCE the Senate will keep the $8 billion in disaster money in the bill, but that does not solve the core problem that the president had: he wants more border money.

AT THIS MOMENT, SENATE MINORITY LEADER CHUCK SCHUMER (D-N.Y.) and INCOMING SPEAKER NANCY PELOSI (D-CALIF.) have no incentive at all to negotiate with Republicans. Zero. Schumer and Pelosi were in agreement with SENATE MAJORITY LEADER MITCH MCCONNELL (R-KY.) that they needed to pass a short-term spending bill until Feb. 8. So now, it’s incumbent upon Republicans -- who decided to abandon that plan -- to figure out how to keep government open, or reopen it when it’s closed.

RIGHT NOW, there are a few off ramps that we see (in no particular order) …

-- DISASTER AID ONLY … FIRST, SPEAKER PAUL RYAN, who is in the last days of his tenure in Congress, could put the Senate-passed stopgap with disaster relief and no increase in border money on the floor. There were around 400 lawmakers who voted yesterday.

-- UPTICK IN BORDER FUNDS … IF RYAN WON’T PUT THAT ON THE FLOOR -- a possibility, considering the backlash to legislation without an uptick in border money -- Ryan and McConnell could try to strike some deal that would increase the $1.3 billion of border money to the original offer of $1.6 billion or something thereabouts. This would be tough, because the president already rejected that offer, so why would Schumer put it back on the table without some give on the GOP side?

-- A SHORT SHUTDOWN … It’s only Friday Dec. 21. On Sunday Dec. 23, two days before Christmas and there’s no deal in sight people might get damn tired of being in D.C. If there are a bunch of absences, the number for passage in the House gets lower, and the governing coalition could get skewed. Ryan might be convinced to ditch Jordan and Meadows just before Christmas Eve. And who knows how Trump will react. Mar-a-Lago is nice this time of year.

-- A LONG SHUTDOWN … There seems to be a significant chance that a shutdown could last until Jan. 3, when PELOSI takes over as speaker. That would be a long, grinding shutdown. But the president could make it less painful, and less dangerous for the homeland.

-- TRUMP FOLDS? … THIS SEEMS THE LEAST LIKELY. The president is dug in, and needs something to reopen government.

IF THE GOVERNMENT REMAINS SHUTTERED, Congress is going to have to stay in session in some way, shape or form.

WAPO’S PAUL KANE: “In budget brinkmanship, Republicans once again hold themselves hostage”

WAPO’S PHIL RUCKER, BOB COSTA and JOSH DAWSEY, “‘A tailspin’: Under siege, Trump propels the government and markets into crisis”: “President Trump began Thursday under siege, listening to howls of indignation from conservatives over his border wall and thrusting the government toward a shutdown.

“He ended it by announcing the exit of the man U.S. allies see as the last guardrail against the president’s erratic behavior: Defense Secretary Jim Mattis, whose resignation letter was a scathing rebuke of Trump’s worldview.

“At perhaps the most fragile moment of his presidency — and vulnerable to convulsions on the political right — Trump single-handedly propelled the U.S. government into crisis and sent markets tumbling with his gambits this week to salvage signature campaign promises. The president’s decisions and conduct have led to a fracturing of Trump’s coalition.

“Hawks condemned his sudden decision to withdraw U.S. troops from Syria. Conservatives called him a ‘gutless president’ and questioned whether he would ever build a wall. Political friends began privately questioning whether Trump needed to be reined in.” WaPo

-- RACHAEL BADE: “‘I’m okay with a shutdown’: Inside the chaos of the House GOP’s last days”

WHERE THE PRESIDENT STANDS -- (@realDonaldTrump) at 10:13 p.m.: “Thank you to our GREAT Republican Members of Congress for your VOTE to fund Border Security and the Wall. The final numbers were 217-185 and many have said that the enthusiasm was greater than they have ever seen before. So proud of you all. Now on to the Senate!” …

… at 10:20 p.m.: “Soon to be Speaker Nancy Pelosi said, last week live from the Oval Office, that the Republicans didn’t have the votes for Border Security. Today the House Republicans voted and won, 217-185. Nancy does not have to apologize. All I want is GREAT BORDER SECURITY!”

ON MATTIS …

-- QUITE A STATEMENT … MITCH MCCONNELL: “I believe it’s essential that the United States maintain and strengthen the post-World War II alliances that have been carefully built by leaders in both parties. We must also maintain a clear-eyed understanding of our friends and foes, and recognize that nations like Russia are among the latter.

“So I was sorry to learn that Secretary Mattis, who shares those clear principles, will soon depart the Administration. But I am particularly distressed that he is resigning due to sharp differences with the President on these and other key aspects of America’s global leadership.

“It is regrettable that the President must now choose a new Secretary of Defense. But I urge him to select a leader who shares Secretary Mattis’s understanding of these vital principles and his total commitment to America’s servicemembers.”

-- NYT’S HELENE COOPER: “Mr. Mattis had repeatedly told friends and aides over recent months that he viewed his responsibility to protect the United States’ 1.3 million active-duty troops as worth the concessions necessary as defense secretary to a mercurial president. … Officials said Mr. Mattis went to the White House with his resignation letter already written, but nonetheless made a last attempt at persuading the president to reverse his decision about Syria, which Mr. Trump announced on Wednesday over the objections of his senior advisers.

“Mr. Mattis, a retired four-star Marine general, was rebuffed. Returning to the Pentagon, he asked aides to print out 50 copies of his resignation letter and distribute them around the building.” NYT … The letter

-- “Mattis departure sends shock waves abroad as allies question U.S. approach to global crises,” by WaPo’s Isaac Stanley-Becker, Pamela Constable and Joanna Slater: “In volatile regions of the world that bear the imprint of decades-long American influence, there was fresh concern about the consequences of an increasingly inward-looking United States. In South Asia and the Middle East, warnings emerged that an abrupt shift in strategy would be a grievous mistake.” WaPo

-- WESLEY MORGAN: “How Mattis tried to contain Trump” … WAITING IN THE WINGS … “Who might replace Mattis?” by Connor O’Brien and David Brown: “Retired Army Gen. Jack Keane ... Sen. Tom Cotton ... Sen. Lindsey Graham ... Deputy Defense Secretary Patrick Shanahan ... Former Sen. Jim Talent ... Director of National Intelligence Dan Coats.” POLITICO

THE LATEST ON AFGHANISTAN -- “Trump Orders Big Troop Reduction in Afghanistan,” by WSJ’s Gordon Lubold and Jessica Donati: “A day after a contested decision to pull American military forces from Syria, officials said Thursday that President Trump has ordered the start of a reduction of American forces in Afghanistan. More than 7,000 American troops will begin to return home from Afghanistan in the coming weeks, a U.S. official said.

“The move will come as the first stage of a phased drawdown and the start of a conclusion to the 17-year war that officials say could take at least many months. There now are more than 14,000 U.S. troops in Afghanistan.” WSJ

WILD … THE TRUMP ADMINISTRATION -- “A Top Aide’s Exit Plan Raises Eyebrows in the White House,” by NYT’s Maggie Haberman and Nick Fandos: “After weeks of discussions about his future, Zachary D. Fuentes, the 36-year-old deputy White House chief of staff, had a plan. Mr. Fuentes told colleagues that after his mentor, John F. Kelly, left his job as chief of staff at the end of the year, he would ‘hide out’ at the Eisenhower Executive Office Building, adjacent to the White House, for six months, remaining on the payroll in a nebulous role. Then, in July, when he had completed 19 years of service in the Coast Guard, Mr. Fuentes — an active-duty officer — would take advantage of an early retirement program.

“The program, referred to as temporary early retirement authority, had lapsed for Coast Guard officials at the end of the 2018 fiscal year, and, according to people briefed on the discussions, Department of Homeland Security officials began pressing Congress in November to reinstate it.

“Administration officials said they had been told that Mr. Fuentes discussed the program with officials at the Department of Homeland Security, and after reporters raised questions with lawmakers of both parties, a provision to reinstate it was abruptly pulled from a House bill on Wednesday.” NYT

THE INVESTIGATIONS … NBC NEWS’ PETE WILLIAMS and KEN DILANIAN: “Mueller may submit report to attorney general as soon as mid-February, say sources”

THE JUICE …

-- NEW: The NRCC is staffing up. ROBERT BOLAND, NRCC Chair Tom Emmer’s chief of staff, is joining the party committee as its deputy executive director. DANA KLEIN, current deputy finance director, will be finance director. JUSTIN RICHARDS of the Republican State Leadership Committee is coming on board as political director. And, CHRIS PACK, comms director for Senate Leadership Fund, American Crossroads, One Nation and Crossroads GPS, will be communications director.

TRUMP’S FRIDAY -- The president will sign the “First Step Act” and “Juvenile Justice Reform Act” at 11 a.m. in the Oval Office. He will also sign the “Countering Weapons of Mass Destruction Act” at 2 p.m. in the Oval Office.

PLAYBOOK READS

SUNDAY SO FAR ...

• NBC

  “Meet the Press”: Sen. Dick Durbin (D-Ill.) ... Sen. Pat Toomey (R-Pa.) ... Julián Castro. Panel: Yamiche Alcindor, Hugh Hewitt, Joshua Johnson and Amy Walter

• CBS

  “Face the Nation”: Sen. Chris Coons (D-Del.) ... Sen. Rand Paul (R-Ky.)

• CNN

  “State of the Union”: Sen. Bob Corker (R-Tenn.) ... Sen. Rand Paul (R-Ky.) ... Rep. Adam Schiff (D-Calif.). Panel: Rick Santorum, Nina Turner, Paul Begala and Mary Katharine Ham

• FOX

  “Fox News Sunday”: Ohio Gov. John Kasich ... Panel: Katie Pavlich, Gillian Turner, Susan Page and Mo Elleithee

• ABC

  “This Week”: Panel: Chris Christie, Donna Brazile, Rich Lowry, Elisabeth Bumiller

• CNN

  “Inside Politics”: Michael Shear, Jonathan Martin, Elana Schor and Manu Raju

WAPO’S STEVE THOMPSON: “D.C. Council member Jack Evans received stock just before pushing legislation that would benefit company”

K-STREET FILES -- “Tony Podesta sues former clients, seeking to collect on unpaid bills,” by Theo Meyer: “The Democratic lobbyist Tony Podesta has been suing former clients over what he says are nearly half a million dollars in unpaid bills — some of it for work he claims was done after his firm collapsed and stopped paying employees.

“The Podesta Group — an empty shell for more than a year after it imploded amid revelations about its work with former Trump campaign chairman Paul Manafort — has sued 10 former clients in recent months, according to court records. They include name-brand companies such as SeaWorld as well as nonprofits such as Refugee Council USA and the Thurgood Marshall College Fund. ...

“Podesta, who accumulated a multi-million-dollar art collection during his flush years, has continued to live a high-flying lifestyle in the aftermath of his firm’s implosion, including recent trips to Venice, Florence, Rome and the French coast, according to his Facebook posts.” POLITICO

RUSSIA WATCH -- “Russian Agents Sought Secret U.S. Treasury Records On Clinton Backers During 2016 Campaign,” by BuzzFeed’s Anthony Cormier and Jason Leopold: “U.S. Treasury Department officials used a Gmail back channel with the Russian government as the Kremlin sought sensitive financial information on its enemies in America and across the globe, according to documents reviewed by BuzzFeed News.

“The extraordinary unofficial line of communication arose in the final year of the Obama administration — in the midst of what multiple U.S. intelligence agencies have said was a secret campaign by the Kremlin to interfere in the US election. Russian agents ostensibly trying to track ISIS instead pressed their American counterparts for private financial documents on at least two dozen dissidents, academics, private investigators, and American citizens.” BuzzFeed

-- UPDATE … “Ex-Senate aide gets 2 months in prison for lying to FBI,” by Josh Gerstein and Matthew Choi: “In a recent court filing, prosecutors accused [former Senate Intelligence Committee security director James] Wolfe of regularly sharing sensitive information with ‘multiple young, female reporters.’ Wolfe in his guilty plea admitted to lying about his contacts with four reporters.

“None of them are named, but one appears to be Ali Watkins, a New York Times journalist who formerly worked for BuzzFeed and POLITICO. Wolfe conceded that he initially denied any personal relationship with any of these reporters to the FBI, but after being confronted with photographs of himself and Watkins, he acknowledged having a personal relationship with her for several years.” POLITICO

BORDER TALES -- “Justice Department Investigating Migrant Shelter Provider,” by NYT’s Rebecca R. Ruiz, Nick Kulish and Kim Barker: “The Justice Department is investigating possible misuse of federal money by Southwest Key Programs, the nation’s largest operator of shelters for migrant children, according to two people familiar with the matter. The inquiry could upend shelter care for thousands of children, escalating government scrutiny of the nonprofit even as it remains central to the Trump administration’s immigration agenda.

“The charity operates 24 shelters to house children who were separated from their parents at the border or arrived on their own. ... The inquiry comes after a New York Times report this month detailing possible financial improprieties by Southwest Key, which has collected $1.7 billion in federal grants in the past decade, including $626 million in the last year alone.” NYT

KNOWING JIM JEFFREY -- “A ‘Never Trumper’ bets on Trump, and loses,” by Nahal Toosi: “James Jeffrey, President Donald Trump‘s special representative for Syria engagement, probably should have seen it coming. In August 2016, the well-respected veteran diplomat signed an open letter denouncing then-presidential candidate Trump as a danger to America. ‘In our experience,’ Jeffrey and dozens of fellow ‘Never Trumpers’ wrote, ‘a president must be willing to listen to his advisers and department heads [and] must encourage consideration of conflicting views.’

“Trump, they argued, is ‘erratic’ and ‘acts impetuously.’ This week Trump blindsided his national security team, including Jeffrey, by announcing that he will be pulling U.S. troops from war-torn Syria. Just two days earlier, Jeffrey had delivered a high-profile speech forecasting a sustained U.S. role in the Arab country. And with that, the 70-something Jeffrey became the latest in a long line of Trump administration officials to be undermined and even humiliated by the president they serve.” POLITICO

PLAYBOOKERS

SPOTTED: Van Jones introducing Jared Kushner at an event last night celebrating the congressional passage of criminal justice reform at Woodward Table. A group of both congressional and White House staffers and others who played a role in the passage attended. ... On the 2:50 p.m. Delta flight from DCA to MSP: Sens. Amy Klobuchar (D-Minn.), Tina Smith (D-Minn.) and Heidi Heitkamp (D-N.D.) ...

... Jan Brewer in first class on American Airlines Flight 685 from DCA to PHX ... Rep. Richard Neal (D-Mass.) exiting McCormick and Schmick’s to face the rain around 3:30 p.m.

ENGAGED -- Marc Sames, chief of staff for audience solutions at POLITICO, proposed to James Whitlock, office manager at POLITICO, in an engagement at Mohonk Mountain House in the Catskills. Pic ... Another pic

BIRTHDAY OF THE DAY: Brian Goldsmith, co-host of Katie Couric’s podcast and a Yahoo and CBS alum. What he’s read recently: “Having spent years in Silicon Valley, I was blown away by John Carreyrou’s reporting in ‘Bad Blood,’ his book about Theranos. It’s amazing how many experienced leaders and investors were hoodwinked by a charismatic liar. The story is a cautionary tale and a reminder to be rigorous and look past the hype.” Playbook Plus Q&A

BIRTHDAYS: Treasury Secretary Steven Mnuchin is 56 ... French President Emmanuel Macron is 41 … Annie Linskey, national political reporter for the Washington Post ... lawyer John Coale is 72 (hat tip: Tammy Haddad) ... Kelly Sadler, Trump WH comms alum ... Caroline Whiteman of FOX News … Vlad Duthiers of CBS News ... Rich Galen ... Joe Gaylord … Jeffrey Katzenberg is 68 ... Phil Donahue is 83 ... Jane Fonda is 81 ... Dave Stroup … Elena Waskey (hubby tip: Jason) ... WaPo’s Karen Heller ... Rahm Emanuel alum Michael Negron ... Sam LaHood, director for gov’t and external affairs at the International Republican Institute ... Lindsay McKenna ... Swopa Needlenose ... Julia Mellon ... PwC’s Roz Brooks ... Lisa Kountoupes … Yana Miles … West Virginia AG Patrick Morrisey is 51 ...

... Rep. Zoe Lofgren (D-Calif.) is 71 ... Kelly Wallace... Zev Yaroslavsky is 7-0 ... Adam Schefter is 52 ... Adam Topper of Sen. Cory Booker (D-N.J.)’s office … Sarah Bufkin ... Josh Scheinblum, who recently welcomed Silas Anthony Scheinblum -- pic ... Alejandra Lopez-Fernandini ... Benjamin Sendejas … Brian Heindl … Lesley Russell ... Boston Globe’s Josh Miller … Gary Lee ... Jessica Brady, communications manager at the Pew Charitable Trusts … Carl Gray ... Beth LaMontagne Hall ... Colleen Litkenhaus ... Sally Armbruster ... Tracy Young ... Nathan Colvin ... D’Ann Grady Lettieri … Nicole Hudzinski … Carl Zingale … Sarah Leonard … Sari Bourne (h/ts Teresa Vilmain)