“Fighting Back With Common Sense”: No More Liberal Apologies As Elizabeth Warren Takes The offensive
Elizabeth Warren is cast as many things: a populist, a left-winger, the paladin against the bankers and the rich, the Democrats’ alternative to Hillary Clinton, the policy wonk with a heart.
The senior senator from Massachusetts is certainly a populist and her heart is with those foreclosed upon and exploited by shady financial practices. But she is not nearly as left-wing as many say — she can offer a strong defense of capitalism that’s usually overlooked. And here’s betting that she won’t run against Clinton.
What all the descriptions miss is Warren’s most important contribution to the progressive cause. She is, above all, a lawyer who knows how to make arguments. From the time she first came to public attention, Warren has been challenging conservative presumptions embedded so deeply in our discourse that we barely notice them. Where others equivocate, she fights back with common sense.
Since the Reagan era, Democrats have been so determined to show how pro-market and pro-business they are that they’ve shied away from pointing out that markets could not exist without government, that the well-off depend on the state to keep their wealth secure and that participants in the economy rely on government to keep the marketplace on the level and to temper the business cycle’s gyrations.
Warren doesn’t back away from any of these facts. In her new book, “A Fighting Chance,” she recalls the answer she gave to a voter during a living-room gathering in Andover, Mass., that quickly went viral. She was in the early days of her Senate campaign, in the fall of 2011, and had been asked about the deficit. Characteristically, she pushed the boundaries beyond a narrow fiscal discussion to explain how government helped create wealth.
“There is nobody in this country who got rich on his own,” she said. “Nobody. You built a factory out there? Good for you. But I want to be clear: You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for.” It was all part of “the underlying social contract,” she said, a phrase politicians don’t typically use.
Warren’s book tells her personal story in a folksy way and documents her major public battles, including her successful effort to establish a Consumer Financial Protection Bureau. But the book is most striking for the way in which her confident tone parallels Ronald Reagan’s upbeat proclamations on behalf of his own creed. Conservatives loved the Gipper for using straightforward and understandable arguments to make the case for less government. Warren turns the master’s method against the ideology he rhapsodized. Even former treasury secretary Timothy Geithner, who tangled with Warren, acknowledges in his new book “Stress Test” that she has “a gift for explanation.”
Warren tells of meeting with Rep. Michael Grimm (R-N.Y.), a former FBI agent, to talk about the consumer agency. “After a bit,” she reports, “he cut me off so he could make one thing clear: He didn’t believe in government.”
That seemed strange coming from the graduate of a public university and a veteran of both the military and a government agency, though Warren didn’t press him then. “But someday I hoped to get a chance to ask him: Would you rather fly an airplane without the Federal Aviation Administration checking air traffic control? Would you rather swallow a pill without the Food and Drug Administration testing drug safety? Would you rather defend our nation without a military and fight our fires without our firefighters?”
How often are our anti-government warriors asked such basic questions?
But doesn’t being pro-government mean you’re anti-business? Well, no, Warren says, quite the opposite. “There’s nothing pro-business about crumbling roads and bridges or a power grid that can’t keep up,” she writes. “There’s nothing pro-business about cutting back on scientific research at a time when our businesses need innovation more than ever. There’s nothing pro-business about chopping education opportunities when workers need better training.”
Oh yes, and it really bugs her when people assert that “corporate” and “labor” are “somehow two sides of the same coin.” She asks: “Does anyone think that for every billionaire executive who can afford to write a check for $10 million to get his candidate elected to office, there is a union guy who can do the same? Give me a break.”
At the end of a long liberal era, Reagan electrified conservatives by telling them they didn’t have to apologize anymore for what they believed. Now, Warren insists, it’s the era of liberal apologies that’s over.
By: E. J. Dionne, Jr., Opinion Writer, The Washington Post, May 18, 2014
“Hey Dems, Thinking About Not Voting In The Midterms?”: Here’s What Happens When The GOP Takes Over The Senate
Passing a federal law banning almost all abortions after 20 weeks. Defunding parts of Obamacare. Weakening the Environmental Protection Agency. Kneecapping the Consumer Financial Protection Bureau, Elizabeth Warren’s baby, the new agency within the Fed to police consumer fraud. And—maybe, just maybe—letting a Supreme Court seat sit vacant until after the next presidential election.
That’s just the start of what happens if the Republicans win back the Senate this November. Imagine, posits a top aide to Mitch McConnell, a steady stream of legislation, much of it conservative, that will force Barack Obama to start vetoing bills for essentially the first time in his presidency.
And imagine a Republican Congress, with an eye toward 2016, that could take a number of steps to make life harder for presumed Democratic front-runner Hillary Clinton. First and foremost: continuing their investigations—indeed redoubling them—into the Benghazi tragedy.
Democrats have been feeling a wee bit better lately about this November. The Affordable Care Act is looking stronger. Southern incumbents like Mark Pryor and Mary Landrieu have seen some friendlier poll numbers.
But the fact remains that the GOP has a decent to good shot at taking the Senate this fall. A brand new Washington Post/ABC poll splashed a little cold water across Democratic faces. It finds Obama’s approval at an all-time low in Post polls. More ominously, Republican respondents said they were planning on voting in far greater numbers than did Democrats. So this is a reality Democrats and liberals, like it or not, have to think about.
In recent weeks, I talked with a broad range of Democratic senators and progressive insiders—and a few Republican and conservative ones—about this GOP future. Verdict: While most thought things would be worse, I was mildly surprised by the number who said that strangely enough, matters might actually improve a little. And I came away thinking that while Republicans in full control of Congress would obviously be well-positioned to tee things up for their presidential candidate, they’d more likely end up doing the opposite.
Yes, Things Can Get Worse
Let’s start with the bleak view. “If the Republicans win the Senate,” says Norman Ornstein of the American Enterprise Institute, “the conclusion they’re going to draw is ‘obstruction works,’ and they’re going to double down on it. So they’ll be thinking, ‘Why go out of our way to do stuff and why compromise when in two years we can win it all?’”
Ornstein’s frequent collaborator, Thomas Mann of the Brookings Institution, thinks that while it should make sense that Republicans eyeing a 2016 White House win would want to have some accomplishments to point to, we shouldn’t bet on it. “The interests of the party in ’16 are clear, but whether that proves sufficient to produce something positive out of the Republicans in Congress is a big reach,” says Mann. “They almost have an incentive to keep the economy going at a more tepid rate.”
Neera Tanden, president of the Center for American Progress, agrees. “A GOP Senate takeover would be terrible for Obama’s presidency,” Tanden says. “It would spell the end of any progress on any legislative action and with GOP control of both houses of Congress, Republicans would set up debates to help their presidential candidates in 2016. And of course, investigations of the administration would double.”
What about the senators themselves? New York’s Chuck Schumer predicts: “It would let loose six years of right-wing frustration. The potential for gridlock is enormous.”
Two of his more liberal colleagues, Elizabeth Warren and Sherrod Brown, emphasized the huge change in priorities we’d see if Republicans were in control of the Senate calendar. That, after all, is one of the main things a Senate majority can do—decide what does and does not get to the floor for consideration. With Mitch McConnell or any other Republican in charge of that calendar instead of Harry Reid, the Senate becomes an entirely different body.
“Their whole effort is grounded in their contempt for government,” Brown says. “On Medicare, on Social Security, on consumer protection, on regulation of Wall Street… If you want to know what a wholly Republican Congress would do, the thing to do is to look at what they’ve done in state capitals where they can. In Ohio, they’ve gone after voters’ rights, workers’ rights, women’s rights. They’d bring that to Washington.”
Warren notes another aspect of majority control that doesn’t get as much attention as floor votes but is also important: what kind of work the committees do and don’t do. Committee hearings rarely have the drama of, say, Henry Waxman hauling those tobacco executives up to the Hill a few years ago. But they matter. Groundwork is laid for future legislation, and that happens because the majority gets to determine what the hearings are about as well as the bulk of the witness list.
Warren had a fresh example at the ready on the day I spoke to her. “Right now, I just came out of a hearing on payday lending,” Warren told me. The payday lenders, who charge usurious loan rates to people living paycheck to paycheck, are one of Warren’s top targets—but they have a powerful lobby, and Republicans generally do their bidding. “If Republicans get in charge of the Senate,” says Warren, “a hearing like that has no chance of happening. They’ll get to roll over the issues of importance to the American people.”
The Pressure to Govern
But here’s the counterintuitive view, expressed by several folks: If Republicans have full control of Congress, they won’t have Harry Reid to kick around anymore. In a divided Congress, each party can point its finger at the other and say: “Obstructionist!” But if one party is running the show, the responsibility for getting results falls entirely on that party’s shoulders.
“If I were a Republican looking forward to 2016, I would actually want to get a little something done,” says William Galston of Brookings. “And if the president has any desire for his last six years to be anything other than trench warfare over the ACA [Affordable Care Act, as the Obamacare law is officially known], then maybe he’ll want to do something, too.”
Several people I spoke with noted that we do have precedent for this, and it’s hardly ancient history. “The model is the late ’90s template,” says Nicholas Eberstadt of the American Enterprise Institute. “Maybe a little less cordial.”
Or a lot less. But he has a point. In the 1994 election, the GOP took over the House and the Senate. At first, Republicans under Bob Dole and especially Newt Gingrich threw everything they could at Bill Clinton. But after a short while, Gingrich softened, and he and Clinton did pass some things—a landmark budget, and welfare reform.
“When Newt took over, at first, they were awful revolutionaries,” says Jim Kessler of Third Way, the centrist Democratic group. “They passed things that went nowhere. It was a Bataan Death March to a dead end. Then with the shutdown [in early 1996] they went too far, and then they realized that to keep their majority they had to govern.”
Hence, West Virginia Democrat Joe Manchin’s advice to the president: “My recommendation immediately would be for President Obama to sit down with Clinton and ask him how he did it. You don’t have to reinvent the wheel here.”
Having such a conversation couldn’t hurt. Bill Clinton is sitting on a library full of good political advice, and Obama should probably call him more often. But whether the Clinton-Gingrich model could be so easily transferred to Obama-Boehner—or, Lord help us, Obama-Cantor—is a wide open question. The parties are more dug in now than they were 15, 18 years ago, especially the Republicans. And they would probably think, as Norm Ornstein noted above, why should they play ball with 2016 coming? The best thing for them to do—in political terms, that is, albeit not for the country—is dig in, and drag down Obama’s poll numbers.
This would be the most effective way to harm Hillary Clinton, assuming she’s the Democratic choice in ’16. Says Bill Galston: “The most significant thing they can do to harm Hillary Clinton is to keep Obama’s approval numbers down. If you are running to succeed a two-term incumbent from your own party, you are in some sense running for his third term.”
There could be a few areas where agreement could be reached—for example, it might very well be in Republicans’ interest (with 2016 Latino voters in mind) to pass an immigration bill. On the other hand, they might not see it that way. They might see it as in their interest to try to paint Obama into a corner on immigration. And this raises the question of how the president would react to this new reality.
Can Obama Learn to Veto?
Here’s an undeniable truth that would flow from a fully Republican Congress. “Ironically,” says Don Stewart, a top aide to McConnell, “more legislation will actually pass, because we’ll just start passing things the House passed. Right now, Senator Reid’s main job is to be goaltender—to block President Obama from having to veto things.” To Stewart, Reid has prevented any number of bills that passed the House and could pass the Senate because “he wants the story to be ‘Republicans block.’ They’ve poison-pilled everything. We’ll take those out and pass things.” And then, what would Obama do?
This issue of the veto would surely be one of the main arenas of conflict if Republicans control both houses. Obama has vetoed less legislation than any president in modern history: just two bills, both in late 2010. George W. Bush vetoed 12 (and he had a cooperative Congress for six of his eight years); Clinton issued 37; George H.W. Bush, 44 (in four years!); and Ronald Reagan, 78. To find a president who’s vetoed fewer bills than Obama, you have to go back to 1881 and James Garfield, who logged zero vetoes, in no small part because just 200 days into his presidency, he was assassinated.
Obama hasn’t broken out his veto pen, says Robert Borosage of the liberal Campaign for America’s Future, because he hasn’t really wanted to be seen as confrontational. Let Reid and McConnell or Nancy Pelosi and John Boehner tear each others’ flesh; he’s wanted to float above that. With a wholly GOP Congress, says Borosage, that dynamic ends: “It dramatically forces the president to do something he’s never wanted to do, which is to define himself as a pole in the debate and be willing to stand up and veto things. That’s so against his character.”
But if this scenario comes to pass, he’ll have to veto. The Republicans will send him budgets and other bills with little—or big—poison pills. “With a Republican Senate, all kinds of things are going to reach his desk,” says Bill Samuel of the AFL-CIO. “There’ll be bills he needs to sign—funding the Defense Department, say—that they can add all kinds of malicious things to.”
To Grover Norquist, this is precisely the plan. Norquist doesn’t see major showdowns in the offing—just a series of minor ones that would nevertheless establish GOP priorities on the budget process, on the bet that the veto-shy Obama wouldn’t really change his stripes. “Lots of little things would slip in, and that’s the difference,” Norquist says. “Riders on appropriations. New EPA rules. Just make a list of everything he’s done by executive order and undo it by law in appropriations bills and make Obama sign or veto it.”
This circles us back to immigration. It seems far more likely that rather than pass a bill Obama could happily sign, Republicans would pass one he’d rather not sign—one without a path to citizenship, say—and box him in politically. “You could come up with an immigration reform that Obama would have a very hard time vetoing,” Norquist argues. “DREAMers, border security, STEM, and legal status. If you’re Obama, do you really want to say no to that?”
Frank Sharry, executive director of the pro-immigration reform America’s Voice, thinks that “the Republican dream of passing an immigration bill that puts Democrats in a pickle is a fantasy,” in large part because there are too many divisions within the GOP on the issue, divisions that will only be highlighted as their presidential contenders take center stage. Sharry might be right about that. But McConnell is nothing if not cagey. If he wins re-election and becomes majority leader, we can be sure he’ll think of plenty of ways to try to force Obama to accept GOP priorities, especially on budgetary matters, or issue a veto that would be difficult for some red-state Democrats to defend.
The GOP Policy Agenda: Look out ACA, CFPB, and Contraception
Political gamesmanship aside, there’s the question of what actual Republican policy priorities might be. Here’s where the liberal activists really get nervous.
Almost certainly, Republicans would pass bills with items similar to what’s been in the budgets written by Paul Ryan over the past few years: reducing Pell grants, food stamps, money for renewable energy. They’d target the EPA, as Norquist suggested, and they’d almost surely go after the Consumer Financial Protection Bureau, the new agency created by Dodd-Frank that reins in the bad practices of banks and other lenders. They’d try to change the oversight of the CFPB, giving business interests more control, or take it out from under the Federal Reserve Bank, where it’s now housed, which could reduce its authority.
This list could go on and on, but let’s look at just one issue area—contraception and reproductive rights. Right now, according to Donna Crane, the vice president for policy at NARAL-ProChoice America, the GOP House has passed or could quickly pass four bills that a Republican Senate would presumably endorse too:
*A law that would make it a federal crime for an adult to accompany a teen across state lines for an abortion and hold doctors liable for knowing that. “Think about that,” Crane says. “This would be the first time we’ve ever made a person carry their state with them, so to speak.”
*A law to ban abortion coverage in all state health-care insurance exchanges.
*A law to ban abortions after 20 weeks with an exception only for the life of the mother. This, Crane notes, has already passed the House.
*A law to end the contraception benefit in the ACA.
And speaking of Obamacare, what about that? It’s not clear Senate Republicans would even waste their time on repeal. That, they know Obama would veto in an instant. Don Stewart, of McConnell’s office, says they’ll go after specific items like doing away with the medical device tax, which appears to have 60 votes in the Senate right now.
AEI’s Nick Eberstadt muses: “The tactical opposition would be to starve the ACA by budgetary means. What happens if Congress doesn’t pass the health budget the president requests? That would be clarifying.”
It’s not clear just yet the extent to which that would be possible. The big-money portions of Obamacare—the Medicaid expansion, most notably—would have to be changed via legislation, which won’t happen as long as a Democrat is president. But smaller parts of the bill are subject to the appropriations process. “My gut sense is that the GOP won’t be able to truly destroy ACA,” says Harold Pollack, a health policy expert at the University of Chicago who had input into the law. “But they will have some success in cutting expenditures required to properly implement ACA and in generally making things nasty for the administration.”
And Finally, Looking Toward 2016
There’s more that I haven’t covered. Two big matters in particular: the filibuster, and presidential nominations. How would McConnell, if he’s majority leader, change the filibuster rules? Would he try to make it apply to fewer situations, so he could pass bills with 51 Republicans and just a few Democrats for cover? And what about nominations, especially judicial ones? Imagine, for example, that Ruth Bader Ginsburg were to retire in 2015. Would a GOP Senate even give her successor a hearing? And assuming it would, just how conservative a jurist would Obama have to nominate to get through a Senate that’s in Republican hands? I asked nearly everyone I interviewed this question, and while there wasn’t unanimity, there was a clear consensus that it wouldn’t be surprising to see the GOP give a nominee a hearing but sit on the vote, leaving the Supreme Court with only eight members until we see who wins the presidency.
And what of oversight and investigations? A Republican Senate could try to keep the Benghazi attack in the headlines until the day Hillary Clinton gives her acceptance speech, and beyond. This point underscores the extent to which 2016 hovers over everything discussed in this article. If the Republicans move into the Senate’s majority offices in the Capitol next January, they’ll be doing so at a time when the party’s 2016 nominee will start being more public in their intentions.
A Congress wholly controlled by the opposition party has plenty of ways it can help its presidential contenders. It can pass constructive legislation, it can pass “positioning” legislation that attempts to checkmate the other party; it also has the simple ability to help keep favorable issues in the news and unfavorable ones out.
But remember this: Legislators don’t take votes thinking about their presidential candidate’s career. They take votes thinking about their own careers, as Third Way’s Jim Kessler observes: “Congressional Republicans will do what they think is best for them to keep their majority in the House and the Senate. Legislative bodies are selfish, and they rarely sacrifice for others. They’d like a Republican president, but that’s a luxury.”
That’s exactly right. To return to Gingrich: He decided that passing welfare reform was in his caucus’ interest. Doing so took a big club out of Bob Dole’s hands. But that’s politics. Now, in the present day, passing immigration reform would probably help a GOP nominee. But legislators would have to decide: Would it help them? So far they haven’t thought so. Legislators will do what they think will help them. If it helps the nominee, great. If it doesn’t, too bad. And remember, many of these legislators represent deep-red districts and states, which probably don’t add up to more than 200 electoral votes—70 shy of what it takes to win.
And so, even if Republicans gain more power on the Hill, they may find that that power, and the imperative of keeping it, makes 2016 an even steeper climb than it already seems against Clinton. But that shouldn’t be much comfort for Democrats. A Republican Senate won’t be able to undo the president’s signature achievement, but it’ll take as many bites as it can out of what Obama has accomplished in the last six years. And trust me, those bite will hurt.
“Giving Wall Street More Leeway”: How Paul Ryan’s Budget Paves The Way For Another Financial Crisis
Representative Paul Ryan released his budget blueprint this week, and fans of his work were no doubt pleased: it called for $5 trillion in spending cuts over the next decade, focused heavily on domestic, non-military spending. Safety net programs like Medicaid and food stamps would face savage cuts, and the Affordable Health Care Act would be repealed entirely. Meanwhile, both corporate and individual tax rates would be lowered.
It is easy to make the case that the rich get richer and the poor get poorer under Ryan’s so-called “Path to Prosperity” plan: one needs only to look at the literally trillions cut from Medicaid and food stamps while the rich pay much less in taxes.
But it’s important to refine that point and note that the financial sector in particular gets many special favors in the Ryan plan. After all, it is one of Ryan’s leading benefactors and he can even be spotted sipping $350 bottles of wine with industry leaders from time to time. And his budget is no doubt a path to prosperity for them.
Moreover, in three crucial ways Ryan’s budget not only gives Wall Street more leeway to act recklessly, but makes it more likely that average Americans face the consequences.
Cutting the Securities and Exchange Commission budget: Already, the head of the SEC is complaining that her agency’s budget is not nearly adequate to police the country’s massive financial sector. In a speech earlier this year at SEC headquarters, director Mary Jo White said, “our funding falls significantly short of the level we need to fulfill our mission to investors, companies and the markets.” The SEC has only 4,200 employees, but must regulate eighteen different stock exchanges and over 25,000 different market participants—and the agency’s responsibilities are growing thanks to new mandates from the Dodd-Frank financial reform legislation.
Ryan has a much different take in his budget: he thinks the SEC is just too big. He doesn’t apply a dollar figure, but makes it clear the agency’s already meager budget should be substantially “streamlined.”
“In the run-up to the financial crisis and its aftermath, the SEC repeatedly failed to fulfill any part of its mission,” his blueprint notes, ticking off a familiar list of whiffs, from the unsound nature of Bear Stearns and Lehman Brothers to the Ponzi schemes run by Allen Stanford and Bernie Madoff.
So far, so good. But Ryan goes on: “These failures have taken place despite significant increases in funding at the SEC, which has seen its budget increase almost sixty-six percent since 2004.”
Apparently, the extra money was the problem. “This resolution questions the premise that more funding for the SEC means better, smarter regulation. Adding reams of regulations to the books and scores of regulators to the payrolls will not provide greater transparency, consumer protection and enforcement for increasingly complex markets. Instead, the SEC should streamline and make more efficient its operations and resources.”
In short: since the SEC failed to adequately police Wall Street at a time its budget was increasing, the magic solution would be to cut the agency’s budget, because ipso facto the agency’s performance would get better.
This line of thinking would not be unfamiliar to those who follow Ryan’s recommendations for federal anti-poverty programs, and it’s just as wrong here as it is there. As the agency’s director herself pointed out (on several different occasions), the SEC plainly needs more resources to conduct better regulation of a huge financial sector. Ryan provides no evidence, aside from that odd logical twist, that reducing the number of SEC staffers poring over filings from hedge funds would somehow increase oversight of those outfits.
Transferring the Consumer Financial Protection Bureau budget to Congress: Here Ryan resurrects a longstanding GOP proposal: that Congress, not the Federal Reserve, should fund the CFPB.
As it stands now, the bureau’s budget is essentially guaranteed. It can ask the Federal Reserve for funding up to a certain cap, and that request cannot be denied. The caps are fixed percentages of the Fed’s operating expenses. This guarantees autonomy from a Congress where many members (like, say, Ryan) are elected thanks to campaign contributions from the big financial institutions the CFPB polices.
Ryan claims to have a problem with this arrangement only because the Federal Reserve’s profits are supposed to be returned to the Treasury to reduce the deficit, but instead a portion of them are siphoned off to a new bureaucracy—one in which he suggests via scare quotes is ineffective. “Now, instead of directing these remittances to reduce the deficit, Dodd-Frank requires diverting a portion of them to pay for a new bureaucracy with the authority to write far-reaching rules on financial products and restrict credit to the very customers it seeks to ‘protect,’” says the blueprint.
CFPB funding would thus be transferred to Congress under the Ryan plan, and subject to annual appropriations. He doesn’t say what Congress should do with that budget once its under legislators control, but one needs only to look to his SEC budget proposals to get a sense of what would likely happen.
Ensuring Taxpayer Bailouts of Big Banks: This is another up-is-down situation where a lot of unpacking of Ryan’s language is needed. His budget says:
Although the proponents of Dodd-Frank went to great lengths to denounce bailouts, this law only sustains them. The Federal Deposit Insurance Corporation now has the authority to access taxpayer dollars in order to bail out the creditors of large, ‘‘systemically significant’’ financial institutions. This resolution calls for ending this regime, now enshrined into law, which paves the way for future bailouts. House Republicans put forth an enhanced bankruptcy alternative that—instead of rewarding corporate failure with taxpayer dollars—would place the responsibility for large, failing firms in the hands of the shareholders who own them, the managers who run them, and the creditors who finance them.
Sounds good! But that would actually accomplish the exact opposite.
Indeed, Dodd-Frank gave the FDIC the power to wind down too-big-to-fail banks, which is called “resolution authority.” In a crisis, if a failing bank is deemed too big for traditional bankruptcy, a panel of bankruptcy judges can place it in receivership under the FDIC. That FDIC in turn then makes a plan for winding down the institution safely—something Barney Frank called a “death panel” for big banks.
Crucially, under this structure, taxpayers can’t end up paying for this wind down—Dodd-Frank explicitly forbids it. Any taxpayer money used upfront to ease the firm into bankruptcy would be recouped by a structured sale of the bank’s assets. (Note that Ryan sneakily says the FDIC has the authority to “access taxpayer dollars,” eliding the fact that in the end it has to pay them back.)
Ryan’s alternative is to end FDIC’s resolution authority and simply “place the responsibility for large, failing firms in the hands of the shareholders who own them, the managers who run them, and the creditors who finance them.”
That’s akin to just saying “it will all work out.” It is unlikely in the extreme that the shareholders and managers can somehow bail out a failing big bank, especially in a crisis. Inevitably, Congress and thus taxpayers would have to step in, without any of the established authority like asset sales that the FDIC now possesses.
Ryan’s plan would lead to more taxpayer bailouts of failing big banks—and by stripping down the budgets of the agencies meant to oversee those institutions, make failure more likely in the first place. But in the meantime, his friends on Wall Street could enjoy less regulation, less oversight, and more comfort that taxpayers will someday come to the rescue.
By: George Zornick, The Nation, April 2, 2014
GOP Nightmare: Obama Fixes The Economy
President Obama’s bold decision to ignore GOP obstructionism and make recess appointments at the Consumer Financial Protection Bureau and the National Labor Relations Board started off 2012 with a bang, inspiring long-deferred jubilation among liberals and paroxysms of outrage from conservatives. There’s an enormous irony here: After three ridiculous years in which conservatives unfairly and absurdly attacked Obama for impersonating a socialist tyrant, the president is suddenly acting like an actual leader — and now the right is really freaking out.
Here’s the nightmare scenario: What if Obama runs totally wild and uses his executive powers to fix the economy? He might, gasp, win reelection!
Sounds crazy, I know. But that’s exactly the sense of panic that emerges from American Enterprise Institute blogger James Pethokoukis’ excited-to-the-point-of-stark-terror post “January Surprise: Is Obama preparing a trillion-dollar, mass refinancing of mortgages?”
Citing speculation from Jaret Seiberg, an analyst at Guggenheim Securities, Pethokoukis paints a picture in which Obama recess appoints a replacement for the current acting director of the Federal Housing Finance Agency (FHFA), Bush appointee Edward DeMarco. DeMarco’s job is to oversee the giant mortgage finance agencies Fannie Mae and Freddie Mac. DeMarco has long made it clear that he believes his primary job is to improve the financial bottom line of Freddie and Fannie, rather than employ the huge power the two government-sponsored enterprises (GSEs) exert over the residential mortgage market to make it easier for homeowners to refinance their mortgages and escape the threat of foreclosure. With DeMarco out of the way, so the theory goes, the Obama administration would have a free hand to push through a much more aggressive plan to help struggling homeowners.
Seiberg:
That could lead to a mass refinancing program for agency-backed mortgages that would go well beyond the existing HARP program. That could hurt agency [mortgage-backed security] pricing and result in higher financing costs going forward. Yet it also could be a big boost for the economy and housing going into the election.
Pethokoukis:
…[S]ome $3.7 trillion of mortgages would be refinanced. That’s right, this would be the Mother of All Mortgage Refinancing Plans. It would help roughly 30 million borrowers save $75 billion to $80 billion a year. As Mayer puts it: “This plan would function like a long-lasting tax cut for these 25 or 30 million American families.” … Talk about a political and economic game changer in this presidential election year. Obama could offer a trillion-dollar stimulus — as measured over a decade — that would directly and immediately impact tens of millions of Americans suffering from the housing depression. Cash in their pockets. Imagine the electoral impact on key states, such as Florida, suffering from both high unemployment and devastated housing markets.
If only. As a Federal Reserve white paper analyzing problems in the housing sector and reviewing potential solutions noted on Wednesday, 12 million U.S. homeowners are currently underwater on their mortgages. The steady flood of newly foreclosed properties hitting the market — expected to be a million per year in both 2012 and 2013 — exerts a relentless downward pressure on home prices. There are few things the Obama administration could do that would have a bigger positive effect on the overall economy than a really large-scale program of homeowner relief.
So how realistic is the January surprise scenario? As with all good conspiracy theories, there are some grains of truth. DeMarco has definitely been obstructing the Obama administration’s efforts at housing reform. Even the usually mild-mannered Federal Reserve hints at this reality in its white paper. Sure, there would be a cost to a large-scale refinancing program, but the benefits might well outweigh the downside:
“Nonetheless, some actions that cause greater losses to be sustained by the GSEs in the near term might be in the interest of taxpayers to pursue if those actions result in a quicker and more vigorous economic recovery.
Protecting Fannie and Freddie’s balance sheet at the expense of the nation’s is penny-wise and pound-foolish, in other words. Why go to all the trouble and expense of bailing out the GSEs if not to use them to good effect?
However, that still doesn’t quite connect the dots between the appointment of Richard Cordray to run the CFPB and a possible recess appointment that would replace Edward DeMarco. First of all, the Obama administration’s efforts to reboot housing have been, at best, halfhearted, and their failure more properly should be blamed on the White House than a single agency administrator. (And late Thursday afternoon, Bloomberg News reported that the White House was denying it had any new refinancing plan in the works.) Secondly, the legal basis for shoving out DeMarco and replacing him with a recess appointment seems especially iffy. Cordray is considered an independent regulator — so, theoretically, he can’t simply be fired at will by the White House, (although his “acting” status does inject some fuzziness into the equation). According to reporting by Ezra Klein and Brad Plumer, Treasury Secretary Timothy Geithner explored the possibility of firing DeMarco, but ultimately found it unfeasible. Republicans are already threatening to sue the administration for the current batch of recess appointments; axing the existing director for the FHFA in pursuit of an election-year housing reform agenda could easily precipitate a constitutional crisis.
But then again, Republicans would only have themselves to blame for the chaos that would ensue if Obama did take the unlikely step of all-out war. In 2010, the Obama administration proposed North Carolina banking commissioner Joseph Smith as its nominee for FHFA director. But as with so many of Obama’s economic-policy-related nominations, Smith’s appointment by the Senate Finance Committee’s ranking Republican, Richard Shelby, was scuttled on the grounds that Smith was unlikely to resist Obama’s housing reform agenda.
So there is after all a direct connection between the Cordray recess appointment and the FHFA. Senate Republicans have routinely blocked Obama’s executive branch appointments, not because they have any particular problem with the quality of the people being proposed for the jobs, but because they want to block Obama’s reform agenda. It’s a travesty of government — and a made-to-order campaign platform. Want to know why the economy sucks? Because Republicans won’t let Obama appoint the people necessary to take direct action — whether that be at the Federal Reserve, or the FHFA, or anywhere else.
By: Andrew Leonard, Salon, January 5, 2012
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