Sunday, June 25, 2017

If a Crisis Breaks Out in a Forest and No One is Around, Is It Still a Crisis?

One of the most horrifying things about a Trump presidency to me was the thought of The Donald managing a crisis.  The best outcome I could think of was for Trump’s staff to handcuff him, stuff something in his mouth, and lock him in the closet until it was over.   But now I am starting to wonder.

What if you held a crisis and no one showed up?

You see, whether to have a crisis or not is to a considerable extent a deliberate policy decision.  That was one thing that became clear to me reading Essence of Decision on the Cuban Missile Crisis.  Some rather disturbing things arise from it.  It is clear (see pages 187-194) that the decision to make the presence of missiles in Cuba a crisis was a conscious decision made by Kennedy for political reasons.  He was being accused of being soft on Communism for allowing the Bay of Pigs invasion to fail.  He had to do something to show strength, but he did not want an actual superpower showdown.  His plan, then, was to draw some sort of line in the sand, something the Soviets has not done, insist that this was the line we would not allow them to cross, and claim victory when the line held.  He decided on missiles because he believed there were no missiles in Cuba.  Well, it turned out that he had calculated wrong and that the Soviets did have missiles in Cuba after all, so failure to provoke a showdown would have been devastating to his political fortunes.  

Furthermore, there were signs in Washington that a crisis was brewing.  Limousines of important officials started appearing at the White House and State Department with remarkable frequency.  Certain officials stopped being reachable by phone.  Lights were burning late in parts of the State Department and Pentagon.   Staffers were bringing cots and staying overnight.  While Kennedy kept the general public distracted by continuing normal activities in the public eye, an astute observer could see signs that there was about to be a crisis.  By watching what sections had lights burning late, an astute observer could even guess that the crisis was about missiles in Cuba.   Such astute observers included the British intelligence and two sharp investigative reporters for the New York Times  and the Washington Post, but not the KGB.   The crisis brought the world closer to nuclear war than any other.  Yet it was entirely a choice on Kennedy’s part and ultimately dictated by political, rather than security, considerations.

Of course, in the Cuban Missile Crisis the initiative lay with us.  Sometimes the President really is ambushed by an unexpected development originated by someone else.  But even then, he has considerable latitude to decide whether to make it a crisis or not. 

Consider, for instance, what has happened so far since January 20.  North Korea has moved into a more confrontational mode and fired repeated missiles over the Sea of Japan, even as the South Korean government was paralyzed by an impeachment.  Saudi Arabia and its satellites have broken off diplomatic relations with Qatar and instituted a blockade, then issued an ultimatum making obviously unacceptable demands, including the closing of Al Jazeera.  Qatar has responded by seeking an alliance with Turkey, Iran, and possibly even Russia.  No shots have been fired, but a blockade is customarily considered an act of war.

Many Presidents would have treated either or both of these events as a crisis and acted accordingly.  Donald Trump, on the other hand, has made some half-hearted gestures such as sending in Rex Tillerson to negotiate and then either allowing him to proceed in the most ineffectual way possible (in North Korea) or actively undercutting him (in Qatar).  And, of course, he has continued spouting insane and inane tweets, either on the would-be crisis or on other topics. 

I should note that I am not one of those people who thing that Trump tweets as a deliberate ploy to distract us from the real issue at hand.  Nothing in his makeup suggests that he is either disciplined or devious enough to do that.  Rather, he just seems to be ranting and spewing whatever goes through his head at any particular time.  Or, as Saturday Night Live puts it, he tweets “[B]ecause my brain is bad.”  Trump’s tweeting does nonetheless have the tendency to distract from more important matters.  Meanwhile, the Pentagon goes right ahead selling arms to Qatar and using our base there to fight ISIS, despite Trump’s tweets of support for Saudi Arabia.  The Pentagon is thus metaphorically handcuffing Trump by limiting his freedom of action.  So far, alas, they have not been able to get him off Twitter, i.e., to metaphorically stuff something in his mouth.  Maybe they can lock him in a very large closet by convincing him to play golf full time.  In short, Trump may be too egocentric to deal with actual crises because they would take attention away from him.  And this may not be so bad because a lot of crises will blow over anyhow. 

But sometimes a crisis strikes so extreme that that doing nothing and letting it blow over is simply not an option. 9-11, for instance.  Or Hurricane Katrina.  Or the 2008 financial crisis.  The good news is that crises of this type are not very common.  Maybe GWB was simply unlucky in hitting the jackpot and getting three such crisis in eight years.  Then again, maybe incompetent management of smaller crises makes larger crises more likely down the road.  I honestly don’t know.

The bad news is that we will undoubtedly find out.

The good news is that at least Trump never sent State Department e-mails on a private server.

Why Republicans Won't Impeach Trump

Occasionally someone on my side asks why the Republicans don’t impeach Trump.  No one doubts that they would rather have Mike Pence in office.   Pence is just as committed to their agenda as Trump – probably more so, since to him it is a matter of real conviction, rather than naked opportunism.   He is infinitely more disciplined than Trump, free of any taint of corruption, irreproachable (to the point of prudishness) in his private life, capable of basic administrative competence, willing to put in the basic  work to get things done, and not prone to embarrassing outbursts.  But above all, in case of crisis, there is no need to handcuff him, stuff something in his mouth, and lock him in the closet until it is over.  Very important, that!

Some people have suggested that given how ideologically unreliable Trump his, Congressional Republicans may welcome his sleaziness.  It allows them to play a little blackmail game – stick to our ideological agenda and we won’t dig too deeply into your shady financial dealings and ties to Russia.  But I have to believe that they would prefer a leader who is ideologically reliable and not sleazy.*

The primary reason the Republicans won’t impeach is simple.  What is an impeachable offense?  The answer is simple – an impeachable offense is anything public opinion says is impeachable.  Try to impeach a President when public opinion does not support you, and you simply create a groundswell in favor of the target, by people who are angry that their judgment in electing him is being second guessed.**  This will probably require two things – public conviction that the President has done something really heinous, and the general sense that he isn’t doing a good job for the public. 

Public opinion turned against Nixon, his approval rating falling to 24% in the general public and 50% or less among Republicans.  This was partly because his Attorney General and Deputy Attorney General resigned rather than fire the Special Prosecutor, something that telegraphed to the general public that his actions were truly heinous.  The fact that oil prices were soaring, lines were forming at gas stations, inflation was surging while the economy was soft, and crime rates were rising probably didn’t help. 

Bill Clinton, by contrast, concealed evidence of an extra-marital affair.  The American public generally saw this as an offence properly punished by laughter and ridicule, but hardly grounds for impeachment.  The fact the economy was growing at a rate not seen in 30 years, unemployment and inflation were at a 30 year low, real wages were rising faster than they had in 30 years, and crime rates were falling (and that the stock market was the best since 1928, as the Onion commented) probably contributed to this impression.  Under those conditions, it would be hard to be impeached for anything short of being caught in bed with a dead girl or a live boy.

So, Donald Trump.  Granted, the man is unpopular with the general public, but he remains highly popular with the party faithful.  And in today’s polarized environment, Republicans in Congress don’t care about public opinion in general.  Only Republican opinion matters.  That is because what the general public thinks makes no difference to a Republican incumbent if he or she does not survive a primary challenge.  And besides, residential segregation of partisan opinion has become so extreme that most Republicans represent districts where no Democrat would have a chance anyhow.  What that means is that right now Donald Trump could shoot someone in the middle of Fifth Avenue and Congressional Republicans would not dare to impeach for fear of a primary challenge.

Could anything change that?  The only think that might turn the party faithful against Trump appears to be if he harmed them personally.  It is possible to imagine such a thing.  Trumpcare could strip millions of Trump supporters of their health insurance or price essential care out of their reach.  Republican cuts to social programs could devastate a poor state like West Virginia.  Republican infighting could lead to a debt ceiling breach with unknown fallout and completely self-inflicted economic damage.  Or Trump could mismanage a crisis so egregiously that even the party faithful could not defend his actions.  But then again, in today’s polarized environment Trump will have the whole right-wing propaganda machine pulling for him in such a case and a lot of faithful followers prepared to accept just about anything so long as it pisses off the liberals.  So it may be that even if Trump strips millions of their health insurance, needlessly crashes the economy with a debt ceiling breach, stumbles into a pointless ground war in Syria, and then shoots someone in the middle of Fifth Avenue, all the while spewing deranged tweets that call his sanity into question, the party faithful will still stick with him.

Oh, yes, and there is one other reason Republicans are unlikely to impeach him, even if he does lose support with the party faithful.  They have an agenda to pass.  Essentially, they want to roll back as much of the New Deal as possible, in order to restore top tax rates as near as possible to pre-New Deal rates.  This agenda has next to no support outside the economic royalists of the Republican donor class, including among the party faithful.***   Republicans in Congress have a choice.  They can either pass their wildly unpopular economic royalist agenda, or they can engage in fratricidal strife.  But there is no way they can find time and energy to do both.  And if they do attempt both, the unprincipled and vindictive Trump will probably set out to improve his standing with the public by denouncing and vetoing their economic royalist agenda.  Given the options, it should hardly be a surprise that Republicans prefer to pass their wildly unpopular agenda to engaging in fratricidal strife.  Neither will do them any good at the polls.  But at least passing their agenda will give them something to show for it.

*It is true that Stalin is purported to have said that he would rather people follow him out of fear than conviction because conviction depends on the other person and fear on himself.  This is just another version of Machiavelli’s comment that it is better for a ruler to be feared by his subjects than loved because love depends on his subjects and fear on the ruler.   But people who obey out of fear are not reliable; they are always eager to look for ways to slip loose.  Real loyalty comes from conviction, and from real respect.
**And not just by people who voted for him.  Bill Clinton won by less than a majority in 1996, but his approval rating rose to 80% when Republicans were bringing impeachment proceedings against him.  Apparently a significant number of people who did not vote for Clinton nonetheless believed the Republicans should have respected the people’s choice.

***My guess is it will have the support of the right-wing propaganda apparatus, which is basically run by economic royalists who are merely exploiting the party faithful.  But I could be wrong here.

Saturday, June 24, 2017

Gaming Out the Politics of Trump Care

I don't mean whether two Senators will defect and allow it to pass, or three will defect and defeat it, whether all the objections now are real or just for show.  I mean the electoral politics assuming it does pass.

This is a matter of timelines of elections and effects of the new legislation.

The electoral time table is clear enough.  There is a Congressional election coming up next year.  All House seats are up for election.  Because of a combination of gerrymandering and natural concentration of Democrats in a small geographic area, the outline of House seats innately favors the Republicans and it will take something strong to overcome that.  Of the 33 Senators up for election, 25 are Democrats, including some in vulnerable states, and only eight are Republicans, most of them in safe states.  That means that in the normal course of things Democrats would lose seats, it would take something fairly strong for them to hold their own, and something even stronger to take control of the Senate.  It also means that even in the highly unlikely event of Democrats winning every seat up for election, they would control only 56 seats in the Senate -- not enough to overcome a Republican filibuster, let alone override a Presidential veto or remove Trump from office.

Here is my understanding of the time table for the Senate bill.

Its changes in subsidies, changes in regulations, and repeal of the individual mandate will take effect next year.  The effects, however, will be felt at different times.

The change in subsidies will be felt immediately next year.  The maximum income for receiving a subsidy will go from 400% of the federal poverty line to 350%.  I don't know how many people are in the gap and will lose their subsidies, but presumably we will hear from them, a lot.  Also, under current guidelines older consumers who receive a subsidy cannot be required to pay more than 9.5% of their income for health insurance.  That amount will go up to 16.2%.  We should be hearing a lot from people who experience that as well.  All of this will take place in 2018 -- Congressional election year.

Regulatory changes allow insurance companies to charge older customers five times as much as younger customers instead of three times as much.  They will also allow states to allow insurance companies to opt out of offering the essential health benefits required by Obamacare and and to allow states to allow a return of lifetime payments caps.  As our side frequently points out (1) allowing insurance companies to limit the benefits they offer can allow them to offer cheaper, skimpier plans to healthy customers -- but also to charge prohibitive rates for essential care to sicker customers, (2) there will be strong financial pressure on states to allow insurance companies  to opt out.

Presumably these regulatory changes, though on the books next year, will not actually come into effect until 2019.  The reason for this is that companies have already prepared and submitted their plans for next year under the old regulations.  So, these changes will not be in effect at the time of the 2018 election.  But news of premium hikes for seniors will be starting to hit the news shortly before the elections (just as rate hikes hit the news shortly before the 2016 election).  Of course, younger customers will get lower rates.  But remember, you always hear more from losers than winners.  And losers (older consumers) are disproportionately Republican.

I have no idea how many states will opt out of the Obamacare regulations, but presumably the deep red states eager to do anything to spite Obama will do so.  In those states people with pre-existing conditions will see immense spikes in insurance that covers essential medical care.  Healthy people will have access to cheaper and skimpier plans.  Again, we will hear more from losers than winners.  Again, this will start to break just before the election (and continue to crescendo afterward).

People will not start having their insurance payments cut off when they reach lifetime limits until after the 2018 election.  Over time, the same phenomenon will spread to more and more state.

The individual mandate will end.  This will please people who don't think the expense of health insurance is worth paying although, again, keep in mind that you hear more from losers than winners. Over time, this will induce the death spiral that Republicans have been seeking from the start, but this sort of thing will take time.

Rollback of the Medicaid expansion begins after 2020, i.e., after the next Presidential election.  So people will not actually be kicked off Medicaid until after the 2020 election -- or will they? Apparently the states of Arkansas, Illinois, Indiana, Michigan, New Hampshire, New Mexico and Washington accepted the Medicaid expansion on the condition that it would be rolled back if the federal government cut funding.  So those seven states will see people kicked of Medicaid before the 2020 election.

Presumably the threat of cuts to Medicaid and people being kicked off will be a major issue in the 2020 election.  Presumably also, even if Democrats win the triple crown, it will be too late to stop the rollback at least for that year -- and Republicans will attack Democrats for letting it happen.

All in all, I would be inclined to think that this would hurt Republicans at the ballot box in the next two elections.  Or will it?  Maybe Republican voters who aren't hurt by these changes will be just thrilled to see all that insurance taken away from the undeserving and eagerly vote Republican again. Maybe even ones who are hurt will consider loss of health insurance an acceptable sacrifice for pissing off liberals and will vote for people who passed this outrage rather than admit they made a mistake.

The four special elections, all won by Republicans, make me think that this just might be so.

And Again on the Healthcare Front

Needless to say, much of the reasoning in my previous post applies to healthcare as well.  Why are Republican so determine to pass a wildly unpopular bill that strips 20 million (or so) people of their health insurance; raises premiums for older consumers (a highly Republican constituency); allows insurance companies to offer skimpier plans, possibly pricing essential services out of the reach of people with pre-existing conditions; and allows the return of lifetime limits?  People on my side assume that it is so they can repeal the taxes that fund Obamacare and that stripping so many of their insurance is purely incidental.  I am not so sure.  I can see many motives similar to the ones I proposed for repealing measures that would allow regulators to keep a failed bank from setting off a general financial crisis.  So here we go again.

Economic royalism.  Republicans are convinced that the unregulated free market is perfect and that if we just get government out of healthcare (including regulating insurers) all will be well.

Ideological principle.  This is much the same thing.  Someone I read (don't remember who) commented that Republicans have opposed government paying for healthcare long before they became committed to tax cuts at the top.  They blocked Truman from creating a national health service along the British model.  They resisted Lyndon Johnson's creation of Medicare and Medicaid. They spiked the Clinton plan (Hillarycare, they called it).  It is not exactly a secret that Republicans see entitlements in general (Medicare, Medicaid, Social Security) as constitutionally and morally illegitimate and would like to get rid of them.  Up till now, any sort of rollback has not been politically feasible.  Republican, having excited so much outrage against Obamacare, now finally see the opportunity to roll part of the welfare state back.  They are taking it.  Not only does the plan take away insurance from people who gained it under Obamacare, it puts a serious squeeze on Medicaid. If they succeed and don't pay too high an electoral price, Medicare and Social Security just might be next.

Pure partisanship.  Obama was responsible for a program that extended health insurance to 20 million people.  That program must die because Obama originated it.  Real world consequences take a back seat to partisan spite and "winning."  (I am pretty sure this is Trump's motive).

A warning to future Democrats.  I always thought that part of the goal for Republicans in fighting Obamacare was to make the subject so toxic that Democrats would never touch it again.  Actually repealing it and stripping 20 million of their health insurance serves the same purpose even more strongly, and in at least three ways.  First of all, it may leave the Democrats too exhausted to go through the whole process of creating a healthcare system all over.   Second, it may create such a mess as to make such attempts futile.  And finally, it makes that point that even if Democrats are successful in cleaning up the mess Republicans make, it will be an exercise in futility, since Republicans will just take a wrecking ball to whatever Democrats create.  I confess to not being clear why having a large uninsured population is such an important principle to Republicans, but it is time to acknowledge that it is.

Winning future elections.  Finally, making total hash out of the healthcare system may cost Republicans the election in 2020, but fear not.  It seems most unlikely the Democrats will be able to clean up whatever mess the Republicans leave by 2022.  And then Republicans can make Democrats' failure to clean up their mess a big campaign issue.

Maybe this last is overly cynical, but just look how Republicans managed to crash the economy in 2008 and then run against the Democrats for not having fixed it yet in 2010.

Possible Reasons

So, let us return to Kevin Drum's question.  Why are Republican so determined, not just to loosen banking regulations, but to destroy the mechanism set up to ensure that a future bank failure does not set off a general financial crisis and tank the economy?  Do they want another financial crisis?

I can offer a number of possibilities, ranging from the least to the most cynical.  Here we go.

The Orderly Liquidation Authority hits a lot of red button issues for Republicans.  It gives vast power to regulatory agencies, encourages international cooperation with financial management, and was supported by the hated Obama.  This is the perfect combination of things Republicans most hate. They oppose the OLA for that reason.

Republicans are economic royalists.  By that I mean that they believe the unregulated workings of the free market are sacred and infallible and always (by definition) produce the optimum outcome, not only for society as a whole, but for all individual actors.  Capitalist, as agents of the free market, are answerable to the free market alone and no lesser mortal may ever question their actions.* Regulations on banks are bad because they restrict lending.  Restrictions on credit are holding back the economy.  And, in fairness to the Republicans, restricting lending probably is slowing growth somewhat.  On the other hand, when banks are allowed to lend without restrictions, the result is invariably overlending, a bunch of bad debts, and an financial crisis.  Republicans complain that financial regulations are inhibiting a potential boom, but it is only by inhibiting the booms that you can prevent the busts.  Which leads to the next possibility.

Republicans are "liquidationists."  The phrase comes from the alleged advice of Herbert Hoover's Secretary of the Treasury in response to the crash, "[L]iquidate labor, liquidate stocks, liquidate farmers, liquidate real estate... it will purge the rottenness out of the system."  This was then and is now the conservative response to the bust that follows the boom.  During the boom, economic royalists inveigh against financial restrictions that inhibit it.  If financial restrictions are lifted and the boom grows greater, they tout it as success.  When the bust invariably follows, they see it as deserved punishment for all the excesses of the boom and warn against doing anything about it.  Such thinking takes several forms.  The simplest is that the sacred and infallible free market will quickly correct itself if you sit back and do nothing, and that any inference will necessarily make things worse. Another is that the bust is necessary to shake out all the distortions of the boom and purge "rottenness," generally defined as debt and moral hazard.  Many also believe that there is an inevitable bottom to be reached, and that the faster the economy hits the inevitable bottom, the sooner it will recover.  Thus encouraging the failure of large portions of the economy is healthy because it anything that fails is obviously weak and something better will inevitably arise to take its place.

Of course, this raises a slightly awkward question.  If the unregulated workings of the free market are so great, why to they lead to a boom-and-bust cycle in the first place?  The usual answer, so far as I can tell, is that the real reason for booms and busts is that government protects people from the consequences of their mistakes, which introduces moral hazard into the system and allows for booms and busts.  Each disaster averted only adds more moral hazard to the system and sets us up for an even worst bust down the line.  If only government would stop interfering and allow the crash to proceed, no matter how bad, it would finally shake the moral hazard out of the system, scare banks into their senses, and end the boom-and-bust cycle once and for all.**

We certainly see evidence of that in how outraged Republicans were following the 2008 crash at any attempt to save the economy, not only by the elective branches of government, but also by the Federal Reserve.  Of course, many people might suspect that Republicans' anger over attempts to save the economy has less to do with ideological dogma than with the party that controlled the White House. Which leads to my next theory.

The OLA allows regulators to wipe out shareholders and claw back bonuses to executives.  I assume this is why banks hate the OLA so much.  If it is why Republicans hate the OLA too, I suppose that might be considers a form of economic royalism -- just a particularly corrupt and cynical one.

Republicans are determined to destroy anything the Democrats may do, regardless of the consequences.  Republicans have worked themselves up into such a lather of hate toward Obama and the Democratic Congress that they have taken a root-and-branch approach to destroying everything they do, regardless of the consequences.  If repealing Obamacare strips 20 million people of their health insurance, if repealing Frank-Dodd leads to a new financial crisis, if tearing up the agreement with Iran leads to them getting a nuclear bomb, those are trivial concerns compared to obliterating the Obama legacy.  And another, closely related, but more cynical possibility.

The harm is intentional, as a warning to future Democrats.  Seen this way, the damage is meant as a clear warning, both to voters who may be tempted to vote for the Democrats and to Democrats who may be tempted to pass legislation if they win.  It will be in vain.  Republicans will destroy whatever you did,  They don't care how much disruption they cause or how much harm they do.  If you care, if you want to spare the country the disruption caused by ripping out well-established policies, then never pass any legislation of consequence because as soon as Republicans return to power, the WILL destroy it.  If Democrats extend health insurance to 20 million people, Republicans will take it back.  If Democrats end lifetime caps, Republicans will restore them and cut of vital, life-saving treatment in mid-course.  If Democrats develop a plan to prevent financial crisis from spreading and crashing the economy, Republicans will make sure the next crisis does just that.  If Democrats put limits on Iran's nuclear program, Republicans will take those limits off.  And, I suppose, if the next time Democrats win the triple crown, they build a major infrastructure program, Republicans will take jackhammers to it when they return to power.

And then the most cynical explanation of all.

It is a clever bit of insurance if Republicans are relegated to the wilderness.  Republicans are doing the best to conceal the nature of the healthcare bill in order to get it passed.  But if it strips 10 to 20 million people of their health insurance, that just won't be possible to conceal.  Nor will it be possible to conceal older customers seeing their premiums skyrocket, or people with pre-existing conditions find themselves unable to afford insurance to cover the care they need, or people abruptly cut off life-saving care when their lifetime limits run out.  All of this could lead to a major backlash against Republicans and may lead to Democrats regaining at least one house of Congress in 2018 and the triple crown in 2020.  It may even lead to an extended time in the wilderness for Republicans, just as did the Great Depression.***  If so (and it is by no means certain), what better way could there be for Republicans to stage a comeback than to set the economy up for another financial crisis and make sure that this time there would be no way to save the economy from the full force of the crash.  Republicans would then blame the Democrats and ride a huge wave election to power.

Just for the record, I actually don't believe this last one.  I don't think Republicans are looking that far ahead.  And I do think they are economically royalist enough not to expect such an outcome.  But when I am feeling very cynical, sometimes I think such thoughts.

*This doesn't quite mean claiming that no capitalist has ever made a mistake, but sometimes it can look a lot like it. For instance, during the 2008 crisis, economic royalists showed a marked reluctance to acknowledge that the financial industry or auto industry could be facing crisis because of mistakes by management.  Instead, they blamed the financial crisis on loose monetary policy, Government Sponsored Entities (i.e, Fannie and Freddie), and the Community Reinvestment Act.  Problems in the auto industry were blamed on unions.
**Objection to any attempt by government to save the economy includes the view of tight money as a universal and timeless moral imperative to be maintained regardless of economic conditions.  I should add here the Austrian School of economists, who believe that central banking and paper money cause the boom-and-bust cycle and that it could be avoided by abolishing central banks and going on the gold standard.  Somewhat inconvenient to this viewpoint is that the US did, indeed, go without a central bank from 1836 to 1913 and was on a precious metal standard all that time -- gold and silver from 1836 to 1873 and gold only from 1873 to 1913.  And the boom-and-bust cycle persisted the whole time.  They are right, nonetheless, that a strict gold standard would prevent a boom-and-bust cycle.  It would do that by so constraining the money supply as to cause an endless bust.
***Then again, to judge from the results of special elections, many Republicans may rejoice in seeing so many of those people lose their insurance, or regard the loss of their own as preferable to letting liberals get the last laugh.

Tuesday, June 20, 2017

Republicans and the Orderly Liquidation Authority

Trump scandals are not an altogether bad thing for Congressional Republicans.  They do create a suitable distraction to allow Republicans to pass their legislative agenda, which would create a lot more resistance if anyone was actually paying attention.  Health care has attracted the most attention but just recently the House also voted on strict party lines to repeal the Frank-Dodd financial regulations enacted in the wake of the financial crisis. Because this is a regulatory, rather than a budgetary, matter, Democrats will filibuster it in the Senate and it will not become law.

Kevin Drum, in frustration, has asked why this is so important to Republicans.  Do they want another financial crisis?  What gives?  Reading their comments, the stated reason is clear enough.  They disapproval of all economic regulation as a matter of general principle and in particular see the regulations of Frank-Dodd as a burden on the general economy and in particular as giving the advantage to large banks that can better afford the costs of compliance than community banks.  But if that is the case, why not just pass a narrower bill giving financial relief to community banks and leave the regulations in place on big banks?  

Republicans' other argument is that regulations amount to "micromanagement" and that all that is really needed is adequate capital ratios for banks and regulations will no longer be necessary.  There may be something to their reasoning.  The trouble with financial safety regulations is the constant danger of fighting the last war -- safeguarding against the specific investment vehicle that caused the last crisis, only to miss the one that causes the next crisis.  But the underlying all financial crises is the matter of leverage -- the debt to equity ratio.  Keep banks from overleveraging, and there will be no need to keep them from making bad investments.  

But no system is fool-proof.  The repeal is called the CHOICE Act because it purports to give banks the choice between maintaining high capital ratios and complying with complex regulations.  What if banks choose the complex regulations, confident that a Republican administration won't enforce them anyhow?  What if they choose the regulations and the regulators do, indeed, miss the next upcoming bubble?  What if banks  choose the higher capital ratios but there is no enforcement mechanism?  In short, what if, despite the rules, there is a new financial crisis, or at least the failure of a major bank that could threaten a financial crisis?  (Recall that the last crisis occurred with the failure of Lehman Brothers).  Frank-Dodd has mechanisms in place to deal with such an eventuality.  Naturally the Republicans want to destroy those, too.

First, the Republican legislation weakens the "stress tests" that banks are subject to that allow us to catch problems early.  Next, it ends the Orderly Liquidation Authority (OLA), which allows regulators to shut down a failing bank in such a way as to minimize damage to the financial system as a whole.  The OLA was created as an alternative to bankruptcy because when Lehman Brothers declared bankruptcy, it set off a general financial panic.  The goal is to keep that from happening again.  The OLA required banks to have advance plans for how they will be dismantled in such a case.  The Republican bill provides for failing banks to be disassembled in bankruptcy, but bankruptcy has problems.  

The goal is to act quickly, so as to prevent a panic.  Bankruptcy can freeze the bank's creditors for 48 hours to prevent a run, but an orderly restructuring must be in place within that time.  Hence the OLA's requirement that all such institutions plan ahead for such an event.  The Republican bill does not end such plans as they exist now, but prevents the regulators from requiring any new banks from drawing up such plans, even if they get big enough to endanger the financial system.  Bankruptcy courts cannot coordinate if multiple firms are failing at once (as happened in 2008).  They cannot coordinate with international regulators to prevent an international panic (as happened in 2008).  And bankruptcy courts can't lend money if needed to temporarily stabilize the financial system.  It is this last that Republicans seize on, calling all such lending a "bailout," to be avoided at all costs (such as, say, the crash of the financial system).  

Oh, yes, and the Republicans also split the monetary policy and financial regulation portions of the Federal Reserve to prevent it as far as possible from saving the economy in case of crisis. 

So, does this thing stand a chance of getting past a Democratic filibuster in the Senate?  Since it is a regulatory, rather than a budgetary, matter, the basic answer is no.  But since the OLA could potentially spend money, that part can be killed by reconciliation, i.e., by a simple majority.   Already Donald Trump has signed an executive order forbidding use of the OLA in case of crisis.  

So why the feud with the OLA, which could prevent a single failed bank from escalating into a general panic?  Stay tuned for the next installment.

Sunday, June 18, 2017

In Which I Shamelessly Use the Shooting of Scalise to Score Political Points

First of call, kudos to our nation's leaders for their statesmanlike reaction to the baseball park shooting of Congressman Steve Scalise and others.  All have behaved commendably. Democrats condemned violence absolutely and without reservation and expressing support for their Republican colleagues.  Republicans made clear that they blamed the shooter only and not their opponents.  The shooter was a Bernie Sanders volunteers, so Sanders made clear:
I am sickened by this despicable act. Let me be as clear as I can be: Violence of any kind is unacceptable in our society and I condemn this action in the strongest possible terms. Real change can only come about through nonviolent action, and anything else runs against our most deeply held American values.
Paul Ryan made as lofty and statesmanlike speech as anyone ask for:
[B]efore this House returns to its business, I want us to slow down and reflect, to think about how we are being tested right now. Because we are. I ask each of you to join me in resolving to come lift each other up...and to show the country—show the world—that we are one House. The people's House—united in our humanity.
Even Donald Trump made a fine, statesmanlike speech that expressed solidarity and refrained from finger-pointing.

Of course, plenty of people who were not our nation's leaders started finger-pointing right away, and it didn't take long for plenty of people at the top to follow.  And, although it may be in bad taste, I can't resist doing a little finger pointing of my own -- in both directions.

Plenty of people on my side have gloated at the prospect of Rand Paul, a strong advocate of the Second Amendment as giving people the right to own guns to shoot at oppressive government hiding behind a pole from someone who took this advice a little too literally.  Bet you never thought that you'd be the target!

But in all seriousness yes, this is one of the reasons what is wrong with the whole insurrectionary theory of the Second Amendment.  The argument is that gun ownership is protected as an individual right so as to protect the collective right of revolution against unjust government.  There is an obvious mismatch here.  Insurrectionists insist that we have the Second Amendment to ensure that We, the People can engage in violent revolution against the government but give very little thought to when that right vests.  Well, they say, it is extremely remote and mostly hypothetical.  And yet plenty of people keep insinuating that it just might vest if Democrats win the next election.

And they never bother to figure out the mechanism of (1) how we will know the time for violent revolution is at and and (2) when that time comes, how it will be planned and coordinated.  The assumption appears to be that We, the People will all magically agree when the time is at hand and will all spontaneously turn out at the same time, just like we did in the battle of Lexington-Concord.  Here I think insurrectionists seriously underestimate the role of existing colonial government in directing the American Revolution or the role the Founding Fathers believed state governments  would play in any hypothetical revolution against the U.S. government.  It also assumes that We, the People are much more unanimous in our views than the evidence shows, and will not (1) have isolated individuals and small groups deciding it is time for violent revolution at unpredictable intervals, or (2) end up shooting at each other if a critical mass ever does decide that the time for revolution is at hand.

I am not suggesting that people like Rand Paul condone terrorism when it is directed at the other side. But I do think they tend to downplay the threat of the militia movement, or the Bundy Ranch standoff because they have some sympathy with the members' complaints, though not their methods.  So yes, I will admit to a certain satisfaction in seeing people who defend the Second Amendment as promoting political violence maybe having second thoughts when they are the targets.

At the same time, I think it is time for our side to acknowledge that we have a serious problem here. Yes, the shooter is an extreme and aberrant example and in no way typical.  But our side really does have a violent fringe that needs to be acknowledged and dealt with.  First of all are the mask-wearing black-clad "antifascist" ("antifa") anarchists looking for any opportunity to riot, smash things, and beat people.

Well, you may say, they aren't very numerous.  No, indeed they aren't.  But the rioting anarchists are the tip of the iceberg.  The iceberg are the people who condone their goals, if not their methods.  And by their "goals," I mean shutting down opposing viewpoints.  I mean the people who try to block entrance to Trump rallies, speeches by Alt-Right speakers etc., and forcibly prevent others from attending.  So you don't like their views.  Deal with it.  They have the complete constitutional right to express them, to hold rallies and speeches, and to attend.  But what about our rights?  We have exactly the same rights.  That means the right to hold our own events, or to hold counter-demonstrations and protests.  But not to shut down theirs.

I think the leadership of our side has been reasonably clear in condemning political violence.  Bernie Sanders condemned the shooting.  Hillary Clinton and LaRaza condemned anti-Trump riots.  But we haven't been clear enough in emphasizing that the place to draw the line in political action is not just with the use of violence.  It is with the attempt to shut down opposing viewpoints.  It means making absolutely clear to our side that blocking entrances and trying to physically prevent people from attending events by speakers they don't like, even if not done "violently," is resorting to force and therefore out of line.  It means making clear that opposing viewpoints, no matter how odious, are constitutionally protected, and that that protesting a safe distance away, not forcible attempts to shut them down, are the proper response.  We need to make clear to the hard core that extreme measures just make enemies.  This should belong to the department of "Duh!" but apparently it needs to be said.

And frankly, we need to move beyond mere exhortation to the more extreme elements on our side and start to support any Republicans, conservatives, police and prosecutors who throw the book and violent rioters (without condoning the prosecution of peaceful protesters who just happen to be there). Given the threat that violent riots pose who our whole system of government, I think a ten-year sentence is entirely appropriate.  My guess is, it would also give a lot of these black-clad, mask-wearing anarchists second thoughts.  I personally also favor increasing penalties for demonstrators who do not follow reasonable "time, place and manner" restrictions on demonstrations and do things like blocking traffic.  It is perfectly possible to draw attention to your cause while keeping to the terms of your permit.  (It certainly worked for the Tea Party).

So here is what I propose.  To the other side: Stop emphasizing stockpiling guns, showing up armed at rallies, and the threat of political violence and the best safeguards of liberty.  Don't forget that you, too, can be targets.  To our side: Make clear that going too far includes a lot more than outright violence and includes any attempt to shut down opposing viewpoints.  And stop blocking traffic.

Political violence is not simply liberty at its most exuberant.  It is a mortal threat to liberty.  Let's all start dialing back on anything that might be taken as condoning it.