“The Sentiment Is Swinging”: Unanimous Senate Vote Bolsters Movement To Break Up Big Banks
It’s nearly impossible to get 99 U.S. senators to agree on anything.
But this past weekend, 99 senators agreed to send a non-binding message that the $83 billion subsidy “too big to fail” banks get from the government needs to end. The measure was co-sponsored by senators Sherrod Brown (D-OH) and David Vitter (R-LA).
The implicit subsidy first came to light in February when a Bloomberg News report found that “recurrent bailouts of the largest financial institutions have given [big banks] a unique advantage: They get a break on their borrowing costs, because creditors expect taxpayers to support them whenever they get into trouble.”
Shortly thereafter, Attorney General Eric Holder made the shocking admission that the Justice Department exercises restraint in prosecuting big banks for fear of shocking the global financial system.
“I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy,” Holder said, during testimony to the Senate Banking Committee.
Now all of the Senate’s Republicans have joined with senators Brown and Elizabeth Warren (D-MA) — who have long warned of the big banks’ continued ability to wreck havoc on the economy — to call for an end to the implicit subsidy.
“I’m glad that Republicans and Democrats can agree: ‘Too big to fail’ needs to end, and these big-bank subsidies make no sense,” Senator Warren said.
Bank lobbyists have denied that the subsidy exists. But as a Bloomberg editorial notes, they’ve rejected any steps that would prevent the government from having to serve as their backstop in case of a crisis.
“If big banks don’t get a subsidy on their debt, it’s hard to understand why they’re so adamantly opposed to measures, such as increased capital requirements, that would put a limit on their borrowing,” the editors noted. “Large banks commonly borrow $25 or more for each $1 in equity — or capital — they get from their shareholders, compared with less than 50 cents per $1 of equity for the average U.S. corporation.”
Financial reform following the financial crisis was weakened by bank lobbying. As Senator Dick Durbin (D-IL) noted at the time, the “banks own the place.” And by “the place,” he meant Congress.
This vote shows the sentiment is swinging against the banks. Whether senators are willing to vote against them when actual legislation is on the line still remains to be seen.
By: Jason Sattler, The National Memo, March 25, 2013
“A Terrible Way To Live”: The Unending Soul-Gripping Terror Of The Red-State Democrat
Over the weekend, we learned that New York mayor Michael Bloomberg will spend $12 million airing ads in 13 states pushing senators to support expanded background checks for gun purchases. NRA honcho Wayne LaPierre, in his usual restrained fashion, described Bloomberg’s engagement as “reckless” and “insane,” but what’s so remarkable is that this is something you need an ad war to accomplish. After all, universal background checks (which would extend such checks to gun shows and private sales) enjoy pretty much universal support, with polls showing around 90 percent of Americans in favor, including overwhelming majorities of Republicans and gun owners.
And yet, not only are lots of Republicans still holding back, but even some Democrats are afraid to take a position on universal background checks. Greg Sargent reports that at least five Democratic senators—Mark Pryor (AR), Mary Landrieu (LA), Kay Hagen (NC), Joe Donnelly (IN) and Heidi Heitkamp (SD)—are refusing to say where they stand on the issue. There’s only one reason why: the abject, soul-gripping fear of the red-state Democrat.
There are certainly some times when a legislator would want to withhold judgment on an issue or a bill. Maybe it’s highly technical, or complex and multifaceted, or something that hasn’t been contemplated before, and she needs time to study it and weigh the pros and cons before making a decision. But this isn’t one of those cases. Sure, there are some particulars that would need to be worked out, but at this point the question is relatively simple: Do you support requiring some kind of background check for private gun sales, or not?1
But even with the knowledge that they would have pretty much their entire constituencies behind them if they came out for universal checks, they can’t bring themselves to say where they stand.
This is just one obvious case, but if you’re a red-state Democrat, you have to live with this kind of fear all the time.2 Since you know your party is unpopular in your home state, you have to be constantly looking for ways you can buck the party, and worrying about the times when you support the things your party stands for. Even if your leadership understands the necessity, it has to make things a bit uncomfortable with your colleagues. You’re forever worrying that the voters you represent will grow angry with you, and saying to them, in effect, “Please don’t be mad at me.” And the more the issue touches on “cultural” matters implicating what people see as their identities, the more fear it inspires, since the senator doesn’t want to be tarred with the lethal “She’s not one of us” attack in her next election.
All politicians have to worry about upsetting the folks back home, which is why they aren’t, as a group, particularly courageous. But the more precarious your electoral situation is, the less freedom you have to just say what you believe. And the red-state Democrats act as though they have no freedom at all. It just seems like a terrible way to live.
By: Paul Waldman, Contributing Editor, The American Prospect, March 25, 2013
1. The NRA’s argument against universal background checks has two parts. The first is that criminals won’t get them, so why bother? By that logic, of course, there’s no point in having laws against murder or robbery either. The second is that it will be an inconvenience for law-abiding gun owners, adding crushing “bureaucracy” to the simple process of adding to your arsenal. The truth, however, is that there are so many licensed gun dealers in America that you’re never more than a few miles from one. I made some graphs breaking out the numbers state by state here; Mayors Against Illegal Guns (an organization funded by Bloomberg) distributed the data geographically to show that 98.4 percent of Americans live within ten miles of a gun dealer. What that means is that instead of completing your gun purchase in 60 seconds, it might take you an hour, since you’d have to go down to the gun shop and have them run a check. Unless you’re buying a gun every day, that doesn’t seem like that much of a burden.
2. There are some blue state Republicans too, but for some reason they don’t seem to have so many visible displays of terror. Perhaps Mark Kirk and Susan Collins wake up in the middle of the night in a cold sweat, having suffered through nightmares in which their constituents chase after them with pitchforks and torches, enraged by their refusal to support minimum-wage hikes and same-sex marriage. But somehow I doubt it.
“Slick And Slicker: A Gingrich-Santorum Unity Ticket Was Still A Loser
Mitt Romney’s financial and organization advantages in the 2012 Republican primaries were commanding, but conservatives who opposed him had faint cause for hope: Rick Santorum and Newt Gingrich combined for more support than Romney for most of the primary season. If one of them conceded, then the other could consolidate Romney’s conservative opposition.
These hopes were far-fetched. Polls showed that Romney would have maintained his lead if either Santorum or Gingrich departed the race, since Romney was actually the second choice of many of their voters. Still, the theory was nearly put to the test. On Friday, Business Week reported that Santorum and Gingrich apparently discussed an unprecedented “unity ticket” to block Romney from winning the nomination. A Santorum-Gingrich ticket could have won critical primaries and led the national polls, but it still probably wouldn’t have won the nomination—a fact that should alarm conservatives heading into 2016.
The plan failed, not surprisingly, because Gingrich and Santorum couldn’t agree which one of them should be on top of the ticket. But let’s assume that they had. A unity ticket would have presumably done better than either candidate would have on his own, since a Gingrich voter who preferred Romney to Santorum might still support the combination of Santorum and Gingrich. But even if the unity ticket didn’t immediately consolidate the Gingrich-Santorum vote, the formation of an unprecedented primary alliance would have received tremendous media attention, potentially generating momentum. Indeed, polls can’t really predict how candidate dropouts will affect a race: In 2008, polls said that Hillary Clinton would maintain a clear lead over Barack Obama if John Edwards dropped out. Yet Obama surged in late January, after his win in the South Carolina primary, Edwards’ departure, and a wave of high profile endorsements.
The combination of a unity ticket and a few big primary wins could have given Santorum-Gingrich the lead in national polls. According to the article, Gingrich and Santorum mulled a unity ticket before three critical primaries in Florida, Michigan, and Ohio. Realistically, a Gingrich-Santorum ticket would have struggled to win Florida, since Romney’s 46 percent of the vote actually exceeded Santorum and Gingrich’s combined 45 percent. But a unity ticket would have done better in Michigan or Ohio.
After sweeping Minnesota, Missouri, and Colorado, Santorum actually led the national polls until he lost the Michigan primary by a narrow 3 point margin. But Santorum held a lead in Michigan polls until just 5 days before the primary and Gingrich won 6.5 percent of the vote—the combination of Gingrich voters and momentum from a unity ticket announcement could have easily given Santorum a narrow win. Regardless of whether Santorum carried Michigan, a unity ticket probably would have won Ohio, where Romney won by just 1 point and Gingrich, who won nearly 15 percent of the vote, probably played the spoiler—especially since Gingrich excelled in the socially conservative southwestern part of the state. Either way, Santorum-Gingrich would have exited Super Tuesday with plenty of momentum and a lead in the national polls heading into a wave of favorable primaries and caucuses in Kansas, Alabama, and Mississippi.
Whether momentum would have allowed Santorum-Gingrich to breakthrough a Romney firewall like Illinois is hard to say. And it would have still struggled to actually win the nomination, even in the best case scenarios: The delegate math was stacked in favor of Romney. Romney would still have been favored to win a disproportionate share of the winner-take-all states, like Florida, Arizona, and New Jersey. The same was true for the big states using modified or conditional winner-take-all systems, like California and New York. In contrast, Santorum-Gingrich’s biggest wins would have been diluted by various methods of proportional delegate allocation in Texas, Georgia, North Carolina, and Tennessee (footnote: Tennessee is actually a conditional winner-take-all, but it’s condition is far more difficult than the other conditional winner-take-all states, since a candidate would need 66 percent of the popular vote). Neither Gingrich nor Santorum made the ballot in Virginia, giving all but 3 of Virginia’s 46 delegates to Romney. Unless Romney’s national support completely collapsed, Santorum-Gingrich would have been hard pressed to overcome the GOP primary system’s bias toward Romney’s coalition.
Conservatives should take note. The RNC’s Growth and Opportunity Project report’s proposal to end conservative caucuses for the purpose of allocating convention delegates has been panned as an attempt to help establishment candidates win the GOP nomination. But the RNC explicitly took “no position” on whether contests should be winner-take-all or proportionate, since “both methods can delay or speed up the likelihood of a nominee being chosen [depending] on who is winning and by what margins.” That’s technically true: A uniformly winner-take-all or proportionate system wouldn’t necessarily favor any type of candidate. But 2012’s mix of winner-take-all and proportionate states favored an establishment candidate. The same delegate allocation rules that would have doomed a hypothetical Santorum-Gingrich unity ticket could again doom a competitive conservative candidate.
By: Nate Cohn, The New Republic, March 25, 2013
“Treasure Island Trauma”: Living In A World Whose Leaders Seem Determined Not To Learn From Disaster
A couple of years ago, the journalist Nicholas Shaxson published a fascinating, chilling book titled “Treasure Islands,” which explained how international tax havens — which are also, as the author pointed out, “secrecy jurisdictions” where many rules don’t apply — undermine economies around the world. Not only do they bleed revenues from cash-strapped governments and enable corruption; they distort the flow of capital, helping to feed ever-bigger financial crises.
One question Mr. Shaxson didn’t get into much, however, is what happens when a secrecy jurisdiction itself goes bust. That’s the story of Cyprus right now. And whatever the outcome for Cyprus itself (hint: it’s not likely to be happy), the Cyprus mess shows just how unreformed the world banking system remains, almost five years after the global financial crisis began.
So, about Cyprus: You might wonder why anyone cares about a tiny nation with an economy not much bigger than that of metropolitan Scranton, Pa. Cyprus is, however, a member of the euro zone, so events there could trigger contagion (for example, bank runs) in larger nations. And there’s something else: While the Cypriot economy may be tiny, it’s a surprisingly large financial player, with a banking sector four or five times as big as you might expect given the size of its economy.
Why are Cypriot banks so big? Because the country is a tax haven where corporations and wealthy foreigners stash their money. Officially, 37 percent of the deposits in Cypriot banks come from nonresidents; the true number, once you take into account wealthy expatriates and people who are only nominally resident in Cyprus, is surely much higher. Basically, Cyprus is a place where people, especially but not only Russians, hide their wealth from both the taxmen and the regulators. Whatever gloss you put on it, it’s basically about money-laundering.
And the truth is that much of the wealth never moved at all; it just became invisible. On paper, for example, Cyprus became a huge investor in Russia — much bigger than Germany, whose economy is hundreds of times larger. In reality, of course, this was just “roundtripping” by Russians using the island as a tax shelter.
Unfortunately for the Cypriots, enough real money came in to finance some seriously bad investments, as their banks bought Greek debt and lent into a vast real estate bubble. Sooner or later, things were bound to go wrong. And now they have.
Now what? There are some strong similarities between Cyprus now and Iceland (a similar-size economy) a few years back. Like Cyprus now, Iceland had a huge banking sector, swollen by foreign deposits, that was simply too big to bail out. Iceland’s response was essentially to let its banks go bust, wiping out those foreign investors, while protecting domestic depositors — and the results weren’t too bad. Indeed, Iceland, with a far lower unemployment rate than most of Europe, has weathered the crisis surprisingly well.
Unfortunately, Cyprus’s response to its crisis has been a hopeless muddle. In part, this reflects the fact that it no longer has its own currency, which makes it dependent on decision makers in Brussels and Berlin — decision makers who haven’t been willing to let banks openly fail.
But it also reflects Cyprus’s own reluctance to accept the end of its money-laundering business; its leaders are still trying to limit losses to foreign depositors in the vain hope that business as usual can resume, and they were so anxious to protect the big money that they tried to limit foreigners’ losses by expropriating small domestic depositors. As it turned out, however, ordinary Cypriots were outraged, the plan was rejected, and, at this point, nobody knows what will happen.
My guess is that, in the end, Cyprus will adopt something like the Icelandic solution, but unless it ends up being forced off the euro in the next few days — a real possibility — it may first waste a lot of time and money on half-measures, trying to avoid facing up to reality while running up huge debts to wealthier nations. We’ll see.
But step back for a minute and consider the incredible fact that tax havens like Cyprus, the Cayman Islands, and many more are still operating pretty much the same way that they did before the global financial crisis. Everyone has seen the damage that runaway bankers can inflict, yet much of the world’s financial business is still routed through jurisdictions that let bankers sidestep even the mild regulations we’ve put in place. Everyone is crying about budget deficits, yet corporations and the wealthy are still freely using tax havens to avoid paying taxes like the little people.
So don’t cry for Cyprus; cry for all of us, living in a world whose leaders seem determined not to learn from disaster.
By: Paul Krugman, Op-Ed Columnist, The New York Times, March 21, 2013
“Arizona Versus The Right To Vote”: A Law Whose Sole Purpose Is To Disenfranchise Poor And Minority Voters
As part of a broader anti-immigration initiative in 2004, Arizona passed Proposition 200, a law requiring voters to provide proof of citizenship before registering to vote. One person affected by this law was Jesus Gonzalez, a custodian and naturalized American citizen who twice had his registration rejected by the state. Arizona couldn’t verify his naturalization number and erroneously identified his driver’s license as belonging to a non-citizen. Gonzalez’s case has reached the Supreme Court, which heard oral arguments about the constitutionality of Proposition 200 on Monday. The Court should rule that Arizona’s burdensome requirements are inconsistent with federal law and therefore illegal.
The Supreme Court has dealt with Republican legislators’ attempts to suppress voting before. In a highly dubious 2008 decision, the Supreme Court found that an Indiana statute—requiring a show of ID before hitting the ballot box—was not unconstitutional on its face, although it left open the possibility that the statute might be unconstitutional as applied. (The Indiana law was ultimately struck down by the Indiana Court of Appeals.) Because the Arizona law concerns voter registration, it is subject to another form of legal challenge.
In 1993, Congress passed the National Mail Voter Registration (or “Motor Voter”) Act, which among other things created a federal form that would streamline the registration requirements. The law mandates that “each State shall accept and use” the federal form. As the story of Jesus Gonzalez highlights, Prop 200 placed an additional set of requirements on Arizonans before they are able to register. The key question presented by the challenge to Prop 200 is whether the Arizona requirements are inconsistent with federal law. If so, because of the Supremacy Clause of Article VI of the Constitution, the Arizona law is “pre-empted” by the Motor Voter Act and is invalid.
The case for pre-emption in this case is clear and persuasive. The statute unequivocally requires states to use the federal form. To permit states to add additional burdens on registration is inconsistent with the text and purpose of the statute, which was designed to create a streamlined and uniform process. Determining qualifications for people voting for federal offices is a clear federal power. Justice Kagan observed at the oral argument that the Arizona law “essentially creates a new set of requirements and a new form.” Prop 200, therefore, is at war with the federal statute whose purpose was to create a clear process for registration. As the Obama administration noted in its amicus brief, to uphold the Arizona law “would thwart the central purpose of [Motor Voter]: to streamline the process of registering to vote for federal office.”
Justice Scalia, while somewhat more restrained than in the previous oral argument dealing with an Arizona law that conflicted with federal authority, was typically candid about his political support for the objectives of the Arizona vote suppression initiative. Leaving little doubt about his sympathy for the Arizona law, he mocked the federal registration requirements, which make it a criminal offense to misrepresent one’s eligibility to vote. “So it’s under oath. Big deal.” Scalia snorted. “If you’re willing to violate the voting laws, I suppose you’re willing to violate the perjury laws.”
Scalia’s arguments are problematic for two reasons. First, whether or not Scalia thinks the federal requirements are sufficient is beside the point—Article I Section IV gives Congress the power to “make or alter” state voting regulations, so the judgment about what requirements are sufficient rests with Congress, not with Arizona or the Supreme Court. And even on its own terms his argument that the threat of a perjury conviction represents an insufficient deterrent is unpersuasive. Arizona provides no evidence that this kind of voter fraud is a problem. The problems of individual voter fraud the bill allegedly addresses are essentially non-existent, and even in theory it is impossible for individual fraudulent voters to alter the course of an election. And, in particular, it is extremely implausible to think that the illegal immigrants the bill targets are likely to risk attracting the attention of federal authorities by committing perjury on a form submitted to the federal government. It is hard to avoid the conclusion of one Arizona legislator that “was never intended to combat voter fraud. It was intended to keep minorities from voting.”
Scalia also mocked the idea that the additional Arizona requirements represented a substantial burden. “Enclosing your driver’s license number is that immense barrier?” he sarcastically asked Patricia Millet, the attorney representing the challengers. But the data proves Scalia is dead wrong to dismiss the extent of vote suppression caused by the initiative. “The district court,” Millet pointed out, “found that 31,550 people were rejected from voting because of Proposition 200.” This is a serious additional burden which shows that the inconsistency with federal law is not merely formal. The vote fraud Scalia and other Republicans are purportedly concerned with is imaginary, but the burdens created by the Arizona law are quite real.
Arizona’s latest attempt to interfere with federal law is particularly problematic given that it concerns the right to vote. Voting is a field in which greater uniformity is a particular virtue. The fact that standards for registration and voting vary not only between states but within states represents “local control” fetishism at its most inane. State and local administration of voting isn’t merely inefficient; the purpose and effect of this decentralization has been to disenfranchise poor and/or minority voters. In this case, Congress appropriately acted to create more uniform and streamlined standards for vote registration. Arizona should not be allowed to contradict federal law and invite other states to similarly disenfranchise voters.
By: Scott Lemieux, The American Prospect, March 19, 2013
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