“The Senate Comity Brigade Was Wrong”: Democratic Activists Urging Filibuster Reform For Presidential Appointments Were Right
I wrote a few days ago about how the Supreme Court’s decision to bar recess appointments made with less than a 10-day break in Senate proceedings increases the importance of controlling Congress.
But it also proves again that Democratic activists urging filibuster reform for Presidential appointments were right, and the status-quo-ante comity-obsessed Senators were wrong.
Now the Democrats who supported changing the rules are rightly taking plaudits for their success:
Democrats say the decision Thursday to rebuke Obama’s 2012 appointments to the National Labor Relations Board has made their change to Senate rules seem remarkably prescient. That change made it easier for the Senate to confirm Obama’s nominees, transforming recess appointments — a tactic to get around the chamber’s hurdles — into something of a relic.
That shift has already allowed Senate Democrats to squeeze through several nominees who might have been defeated under the old framework.
“Clearly this president has faced more opposition for even routine appointments, let alone important lifetime appointments like the judiciary. I’m sorry we had to change the rules and it’s created some pain in our Senate that’s still there,” said Senate Majority Whip Dick Durbin (D-Ill.). “But there had to be a way for this president to lead.”
The language used by Durbin here is still odd. It has “created some pain” in “our” Senate? Too often, the language used by Senators to describe the upper chamber is reminiscent of a private drinking club or children’s clubhouse. It isn’t. Whatever advantage there might have been in the past to friendly interactions between Senators across party lines to accomplish national goals has long been erased by hardline partisanship.
That’s largely because movement conservatives largely purged northern Rockefeller Republicans from their ranks, and because the old Dixiecrats who liked New Deal policies as long as they didn’t benefit minorities too much are gratefully a relic of the past. So on most issues not related to national security, there’s frankly very little reason for Senators to “reach across the aisle” anymore.
The clubby comity so prized by Senators now serves little purpose beyond the worst kind of bipartisanship on behalf of wealthy corporate interests and military contractors. It would be far better for Senators to worry more about how well their own views match those of their constituents, than how well they get along with one another.
By: David Atkins, Political Animal, The Washington Monthly, June 28, 2014
“Keeping Regulation At Bay”: One More Step Toward The Next Meltdown
The delaying tactics we told you about nearly two years ago have worked beautifully. The bailout worked (if not for homeowners, at least for the banks). It worked so well that the underlying problems that led to the financial crisis have remained largely ignored.
The regulations that have been written (and continue to languish during their extended comment period) are on their way to being eliminated or weakened yet again by Congress. The House helped out this week by passing a bill (HR 4413) that ensures that if any regulations do get approved, they will be difficult to enforce.
As we reported back in 2012, JPMorgan Chase in London managed to avoid examination and enforcement by the Commodities Futures Trading Commission simply by labeling their massive speculation in credit default swaps as “portfolio hedging.” It was a loophole big enough for a whale to swim through.
Another loophole made enormous by HR 4413 is the cutoff separating “end users” from “swap dealers.” In the CFTC draft regulations written after Dodd-Frank initiated oversight on the swap business, any market player with more than $100 million in swaps per year was considered a dealer, and subject to stricter oversight and capital requirements.
After the industry complained, the CFTC agreed to delay that stronger oversight for two years and put in a temporary $8 billion cap that was due to drop to $100 million later this year. The bill that passed the House makes that $8 billion cap permanent. Now any firm that wants to do $100 billion in business without regulation has the option to create 13 separate companies.
From the point of view of the people who profit from the lack of regulation, streamlining the lack of oversight is financially sound. After all, real estate values in waterfront Greenwich estates, the Hamptons, and even Park Avenue will likely suffer if bankers and hedge fund managers make less money.
For those who trade in opaque markets, profits are maximized when some participants have information that their customers and competitors don’t have. An open market with published prices and capital reserves would limit profits and return on equity. Complying with regulations and keeping records available for supervisory review costs money. It all cuts into profits.
And if profits get squeezed by an overbearing, overregulating government, how can a valuable part of our capital markets survive? It’s not cheap, after all, to employ the people needed to execute this business that virtually no one understands and that the government doesn’t want to regulate.
Remember when AIG Financial Products blew up? Even though there were traders, accountants, clerks, lawyers and others from Lehman who found themselves jobless, the Treasury Department decided to pay more than a million dollars in bonus payments to each of the valuable AIG employees that had bet so big, and so badly.
Thankfully, the lobbyists hired by the industry have figured out how to keep the business profitable, and how to turn the task of complying with new regulations into a potential new profit center. They helped incorporate a brilliant strategy into HR 4413, and got 265 members of the House to vote for it.
The CFTC will be required to create and publish cost-benefit studies prior to adopting new compliance policies, and those studies will be subject to judicial review. That will take some time. After the CFTC rules go into effect, market participants will be free to argue that the cost estimates were inaccurate. Because the studies are subject to judicial review, the companies being regulated can theoretically get the government to pay them for any additional costs they incur when complying. With a little creative accounting, maybe the swap dealers will turn a profit on compliance departments.
While the delaying tactics written into the bill keep regulation at bay, trading in credit default swaps will continue as it has, with the risks it has, here and abroad. Over half of the hundreds of trillions of dollars in swaps on the books of our banks belong to foreign subsidiaries. A condition of the new bill requires the CFTC and the SEC to certify that derivatives regulations are not already in place in those foreign jurisdictions before they become subject to the new “regulations.” All a bank or hedge fund needs to do is dispute the nature of existing derivatives regulations in their legal places of business overseas, and any oversight can come to a grinding halt while they all work it out. In the meantime, they can enter into lots of credit default swap contracts.
Perhaps the most brilliant part of HR 4413 is hidden in the budget. The congressionally mandated increased workload has no accompanying increase in the commission’s budget. It won’t be easy to run thousands of legal and economic analyses without the people to do it or the money to hire them.
Speaking of people, the bill passed in the House also peculiarly reinvents the org chart. Key regulatory and enforcement personnel currently report directly to the commissioner of the CFTC, but under the new law, those people would instead report to five different members of the commission. Hiring, firing, and departmental budgeting will be decided by all five members together.
Have you ever reported to five bosses at the same time? I did, for about a year, and it’s nearly impossible to get anything done.
By the way, in case you thought our government didn’t have a sense of humor, Congress tells us we can call HR 4413 the “Customer Protection and End User Relief Act.”
Correction: The “hundreds of trillions of dollars” figure cited in the 12th paragraph refers to all swaps, not just credit default swaps as this post originally stated.
By: Howard Hill, Former Investment Banker, The National Memo, June 27, 2014
“Republicans Have A Choice”: Their Donors, Their Right-Wingers, Or A Government Shutdown
It looks like the one big(gish) substantive consequence of Eric Cantor’s exit from the House Republican leadership will be the demise of the Export-Import bank. Or at least it looks very likely that John Boehner (who supports the Export-Import bank) will allow its authorization to lapse rather than pick a fight with conservative hardliners in the House.
The fact that the bank’s authorization expires on the same day that federal appropriations expire has analysts wondering whether it will end up at the center of a tug-of-war over funding the government, precipitating a shutdown. And that, in turn, has conservatives salivating over the prospect of “Democrats shut[ting] down the government” to protect corporate welfare.
First, allow me to disclose that I really don’t care very much what happens to the Export-Import bank, which subsidizes U.S. exports with loans and loan guarantees to insure against non-payment by importers. I guess the one convincing argument for reauthorizing it temporarily, or reforming and reauthorizing it, is that it probably is providing a modest boost to the economy at the moment, but generally liberals and hardline conservatives agree, for slightly different reasons, that the bank should go. Establishment Republicans, by contrast, really like the Ex-Im bank, which explains why Democrats are happy to set aside whatever misgivings they might have about it in order to exploit the division within the Republican conference.
That division is also why any talk of Democrats shutting down the government to protect Ex-Im is basically dishonest spin.
I think there’s almost no chance anyone will shut down the government over the Ex-Im bank, but if a shutdown happens, it will come as a consequence of Boehner wimping out, not of anything Democrats might do.
To my mind, there are at least four ways a fight over Ex-Im could play out within a fight over funding the government. Half of them end with the elimination of the Ex-Im bank. Only one ends with a government shutdown, and it would be on House Republicans.
I’ve simplified the processes involved here, for the sake of clarity, but in order of escalating complexity, the scenarios are as follows:
1. The House passes a bill to fund the government and sends it to the Senate, where Republicans successfully filibuster any attempt to reauthorize the Ex-Im bank. Harry Reid caves. Result: Ex-Im bank eliminated.
2. The House passes a bill to fund the government and sends it to the Senate where Democrats and Republicans tweak it to reauthorize the Ex-Im bank, among other things. It goes back to the House, where Boehner “caves” and puts it on the floor. Result: Ex-Im bank survives.
2a. The House passes a bill to fund the government and sends it to the Senate where Democrats and Republicans amend it to reauthorize the Ex-Im bank. It goes back to the House, where Boehner allows a vote on a measure to strip the Ex-Im authorization out of the legislation, but the measure fails thanks to the support of an overwhelming number of Democrats and a large contingent of Republicans. Result: Ex-Im bank survives, Republicans crow disingenuously about how Democrats are the real crony-capitalists.
3. The House passes a bill to fund the government and sends it to the Senate where Democrats and Republicans amend it to reauthorize the Ex-Im bank. It goes back to the House, where Boehner can neither muster the nerve to affirmatively strip the authorization (and anger donors) nor the nerve to put the whole bill on the floor (and anger conservatives). So he does nothing. Result: Boehner shuts down the government, Ex-Im bank in limbo.
4. The House passes a bill to fund the government and sends it to the Senate where Democrats and Republicans amend it to reauthorize the Ex-Im bank. It goes back to the House, where Boehner chooses his speakership over his big business allies, and rounds up Republican votes to strip the authorization out of the bill. The House sends the bill back to the Senate where Reid caves. Result: Ex-Im bank eliminated.
Note, I have baked into these scenarios an assumption that Senate Democrats won’t refuse to fund the government unless the Ex-Im bank survives because most Democrats a) Don’t really care that much about the bank, b) are mainly just interested in exploiting Republican divisions, c) want to make a point to conservative big business donors about the incredibly bad investment they’ve made in House Republicans, and d) aren’t an inherently reactionary bunch like their counterparts in the House GOP.
For what it’s worth, I think option 2a is the kabuki show we’re most likely to see. I think the GOP leadership’s overweening interest in not shutting down the government will carry here, which means scenario 3 is the least likely. But either way, Boehner and Mitch McConnell will have to make some fairly consequential decisions in the next few months.
By: Brian Beutler, The New Republic, June 27, 2014
“A Good Time To Count Our Blessings”: Imagine The Iraq Crisis–But With A GOP President At War With Iran
As Iraq spirals deeper into a sectarian crisis between an ineffectual Shi’ite government and radical Sunni militants, the importance of a grudging working relationship between the United States and Iran has never been of greater importance. Without some Iranian help, Iraq’s central government will likely fall apart and the nation will be overrun by extremists potentially as dangerous as Al Qaeda in Afghanistan ever was.
So today would be a good time to count our blessings that we do not have this man as president:
John McCain: “You know that old Beach Boys song, Bomb Iran? Bomb bomb bomb, bomb bomb Iran.”
Or this one:
Mitt Romney, a former Massachusetts governor, said he would “bring the current policy of procrastination to an end.” “Hope is not a foreign policy,” Romney said. “The only thing respected by thugs and tyrants is our resolve.”
Or this one:
Former House Speaker Newt Gingrich, also addressing the group by satellite, said in his administration, “we would not keep talking while the Iranians keep building.” He said the “red line” was not when Iran was ready to detonate a nuclear bomb. “The red line is now” because the Iranians are “deepening their commitment to nuclear weapons while we talk,” Gingrich said. “It is an unacceptable risk.”
Here is what the President said after Romney, Gingrich and others were getting their war talk on:
“These folks don’t have a lot of responsibilities,” the president said. He said he was struck by the “casualness” of the way his political opponents talk about war. “I’m reminded of the costs involved in war.”
No kidding. If a Republican had been elected President in either 2008 or 2012, we would likely be at hot war with Iran by now or at the very least on the edge of it. This would have further weakened the Shi’ite position in Baghdad even as Syria devolved into the nightmare that has been helping to fuel ISIS, the Sunni extremists. The entire Middle East would be in abject chaos, with potentially nuclear consequences.
A McCain or Romney presidency would have been a foreign policy disaster that would have made George W. Bush look like a skilled statesman and general, and it would have cost tens or even hundreds of thousands of lives.
By: David Atkins, Political Animal, The Washington Times, June 28, 2014
“The Lifetime Framework”: The Devastating, Lifelong Consequences Of Student Debt
America has gone through a rapid social experiment over the last 20 years. We have created a system, in large part through public disinvestment, where our young people take on large amounts of student debt in order to achieve a college degree. The sea change has been so quick it’s been difficult to gather even basic, solid numbers on it, making the consequences of such massive student debt subject to intense debate.
A new report from Beth Akers and Matthew M. Chingos of the Brookings Institution has further fueled that debate, arguing that the conventional story of escalating debt burdens due to student loans are overstated. Even though the number of young households with debt has increased from 14 percent to 36 percent between 1989 and 2010, the percentage of monthly income those people put toward their student debt payments is largely the same. Even though student loan debts are going up, they’ve been accompanied by rising incomes, largely balancing out the burden. The focus shouldn’t be on student loans broadly, and instead on more targeted solutions like focusing on those who drop out of college but still have debt.
But this study, like many arguments along these lines, suffers from a major problem: It focuses on a month-to-month comparison. When we look at the effects of a major economic change—whether it’s government debt, taxes, or replacing a system of publicly funded free colleges with a system of debt for a diploma—we can’t just look at what immediately happens. We need to also consider how people behave in the long run. And when we look at student loans from the point of view of a lifetime, the results are more worrisome.
How could this matter? An infamous study on student debt by Jesse Rothstein of the University of California, Berkeley, and Cecilia Elena Rouse of Princeton looked at the results of a highly selective university replacing loans with grants. It concluded “that debt causes graduates to choose substantially higher-salary jobs and reduces the probability that students choose low-paid ‘public interest’ jobs.”
Let’s imagine two scenarios. In the first you have high student loans, so you work for a corporation in the private sector for high wages. And in the second you have virtually no student loans, and you work for less wages in a job focused on the public interest, say as an educator or at a nonprofit. In both cases your student loan payment would be the same as a percentage of your income. The Brookings result would hold. However your lifetime choices will have radically changed as a result.
We see this with other lifetime measures, such as how entrepreneurial people are. A recent study by Brent W. Ambrose of Pennsylvania State University, and Larry Cordell and Shuwei Ma of the Federal Reserve Bank of Philadelphia, found “a significant and economically meaningful negative correlation between changes in student loan debt and net business formation for the smallest group of small businesses.” This makes sense. You can keep your high student loan burdens low if you stay with an established employer. But if you strike out on your own, you’ll have less and more volatile income when you start. This is harder to manage with student loans, which also impacts your credit rating. Again, we can see the short-term student loan burdens staying the same, even though lifetime choices are much more limited as a result.
The lifetime framework also puts front and center something the Brookings study largely hand-waves: the rapid increase in how long people are paying off their student debt. Though the percentage of income that student-loan debtors pay stays the same, the length they are paying those loans is up 80 percent. What was once an average length of 7.4 years in repayment in 1992 is now 13.4 years. All things equal, a large increase in the length you will be paying student loans means you will dedicate a larger portion of your lifetime income to student loans. This burden goes missing by narrowly looking at a month-to-month basis.
This has major consequences for people’s ability to build wealth. Indeed, much of the current energy in analyzing student loan burdens are looking at this longer dynamic, and how it interplays with the ability for people to amass savings. As Richard Fry of Pew found, using the same data set as Brookings, “households headed by a young, college-educated adult without any student debt obligations have about seven times the typical net worth ($64,700) of households headed by a young, college-educated adult with student debt ($8,700).” Fry also finds that those who took out loans are less satisfied with their financial situation compared to people without loans. Similar results have been investigated and found by the Federal Reserve Bank of St. Louis.
This, in turn, has major consequences for how young people will ultimately transition into adulthood. According to Dora Gicheva of the University of North Carolina at Greensboro, student debt decreases the long-term probability of marriage by a significant amount. In a result that should make social conservatives gasp, Gicheva found that an additional $10,000 in loans decreases the probability of marriage by at least 7 percentage points. Meanwhile, the Federal Reserve Bank of New York found that young student debtors are retreating from those traditional markers of adulthood, homeownership and owning a car. These effects reflect the long-term consequences of student debt on a young person’s economic security just as much, if not more, than their monthly bill.
This system of student debt has happened so fast that proper analysis is hard to do. But what’s most interesting is research showing how student debt threatens fundamentally American ways of life. Student debt chips away at the ability to be a risk-taking entrepreneur, a homesteader who has amassed enough wealth to be self-sufficient, or someone who has dedicated their craft to working in our rich civil society. These are three very real versions of the American Dream, and contrary to what studies like Brookings’s might show over the short term, they are all being weakened by the way we saddle young people with student debt burdens.
By: Mike Konczal, a Fellow with The Roosevelt Institute; The New Republic, June 24, 2014
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