Monday, December 15, 2014

Transparency is for suckers.

Jonathan Gruber, the MIT economist and Obamacare guru, apologized last week for his "mean and insulting comments." Set aside the irony of having to apologize for mean and insulting comments to Congressman Darrell Issa, for whom mean and insulting comments are standard fare, Gruber beseeched Issa's committee to accept his apology for suggesting that "lack of transparency is a huge political advantage" made possible only by "the stupidity of the American voter" just days before Congress maneuvered behind closed doors to give a huge Christmas present to the nation's largest banks and political parties buried in its last minute budget bill.

The sound of jingling coins that could be heard as members of Congress skipped off to National and Dulles airports was payment for a job well done. Tucked away in the budget bill was a provision that loosens the rules on derivatives trading by commercial banks, and specifically allows trading by bank units that benefit from federal deposit insurance. The provision, originally drafted by lobbyists for Citibank, was vigorously opposed by members on the right and the left, who each object to the growing financial concentration of the banking system and the vulnerability of the economy and taxpayers to increasing systemic risk in the banking system.

A similar dynamic transpired over a campaign finance rider that was also attached to the budget bill. That rider allows for significant increases in the amounts that individuals can give to political parties, from $97,200 to $777,600 in some cases. Like the derivatives deregulation provision, that rider was opposed by both the right and the left as a power grab that would boost the influence of the political parties over the nomination process at the expense of the grass-roots of the parties.

For all the feigned outrage by Darrell Issa and his colleagues, there was nothing new in Gruber's observation that "lack of transparency is a huge political advantage." Certainly, the banking industry understands this well. The industry tried to get a straight up or down vote on the Citibank legislation, to no avail, so attaching it as a rider to the budget bill--the non-transparent route--was clearly preferable. Passing riders in the dark of night is nothing new to the banking industry. Back in the 1980s, Rhode Island Congressman and Banking Committee Chairman Fernand St. Germain famously snuck in a rider that more than doubled federal deposit insurance for the savings and loan industry. St. Germain's rider laid the groundwork for the ensuing real estate investment fandango that ended in the collapse of the savings and loan industry, foreshadowing the real estate-driven banking industry collapse twenty years later.

Four years ago, JP Morgan Chairman and CEO Jamie Dimon, who led the lobbying effort for the bank rider, sought to dismiss concern over banking crises when he observed that the nation should expect to have a financial crisis every five, seven or ten years. Perhaps a corollary to Dimon's Rule is that the seeds of banking crises are planted in federal legislation that precedes them. And as John McCain--a member of the Keating Five influence peddling scandal that was the seminal event of the S&L crisis--reminds us, political contributions that to an untrained eye might seem to be provided in exchange for legislative favors were part of the political playbook back then as they are today. As Charles Koch famously observed on the pages of the Wall Street Journal, there is no investment made by American corporations that offers a higher prospective return on investment than lobbying in Washington, DC.

Neither of the two budget bill riders that threatened to crash the budget deal last week enjoyed popular support. While the bank bonanza may have only raised the ire of members on the left and the right, distrust of the banking industry is widespread across the general population, perhaps matching only the nation's lack of faith in our political institutions. But whatever the view of the American voter, the riders did enjoy broad support within the establishment center on both sides of the aisle. If bi-partisanship is supposed to be the Holy Grail of our politics, this was a genuine moment of coming together. And for good reason: both bills were about money, and, more specifically, money in the pockets of the members themselves.

For incumbent members of Congress, the value of raising the contributions limits is self-evident, as that money will be used by the party committees first and foremost to defend incumbents that might be at risk against challenges from their respective political flanks. The value of pandering to the banks is equally evident when one considers the $6.2 billion spent by the financial services industry lobbying Congress over the past 15 years--or over $750,000 per year per member. Not to put too fine point on it, in the Senate, the two respective leaders that got the bill through, Harry Reid and Mitch McConnell, received $1.3 million and $2.2 million, respectively, in campaign contributions from the securities and investment industry over the past five years, well more than they were paid by the American voters. Given these realities, it should be no surprise that as members of Congress faced the prospect of a collapse of the budget bill and missing their plane flights home for Christmas recess, proponents of the budget deal were able to suppress dissent and get the budget bill passed.

Any time the left and the right find themselves allied against the center on legislative fights, Americans should sit up and take notice. Lack of transparency was indeed the key enabling factor, the 'huge political advantage' in Jonathan Gruber's words. But it was just the means to the end. The end was money and power. Each of the riders that were approved last week will have the effect of concentrating wealth and political power in the big banks and the political parties. Jonathan Gruber was pilloried in front of a Congressional committee for his "mean and insulting comments" because he uttered a simple truth and then wondered in passing why Americans put up with it, whether it was "stupidity of the American voter or whatever." Then the members of that committee made a mockery of their own outrage, as they joined their brethren in a bi-partisan vote that only demonstrated the truth of Gruber's words.

Sunday, December 07, 2014

Eyes wide shut.

Rand Paul and John McCain are at odds over whether the Senate needs to declare war on ISIS. Paul insists that the Senate has no choice, as under the War Powers Clause of the US Constitution only Congress is empowered to take the country to war. McCain is derisive of Paul and his proposed war resolution, and has the support of his Senate colleagues, who have shown no interest in voting on the war. For some, this dispute may seem to be a technical matter--after all we have fought wars for decades without actually following the Constitutional rules. For others, Rand Paul among them, fealty to the Constitution demands that any decision to go to war be put to a vote. This may seem to many observers to be an intra-party skirmish that is of little import, but it is actually a rare opportunity for the country to consider whether and why we should go to war.

We are not good at having national debates about important issues. When issues of importance come up, we run to our corners--Red vs. Blue. Fox vs. MSNBC. It is rare that we have substantive, thoughtful exchanges of ideas and views. On matters of war and peace, there are particular ironies. Despite having led the nation into two long wars that are now widely viewed as mistakes, the public continues to trust Republicans more than Democrats on matters of war and national security. Since the Vietnam War, Democrats have been viewed as the anti-war party, and for decades now they have struggled to change this image to little avail. The difference between the parties was most clearly on display in the vote to go to war in Iraq. Republicans wanted to vote yes, Democrats were afraid of voting no. Given this reality, the fight between Rand Paul and John McCain is the best chance we are likely to have for a real and substantive debate over US war policy.

Rand Paul and John McCain start from very different positions. John McCain's moral authority as a hawk on matters of national security is rooted in his time as a prisoner of war in Vietnam. He is a decorated veteran at a time when the percentage of Congress that has served in the military has declined to 20% from around 75% several decades ago. Rand Paul's credibility is largely rooted in his commitment to constitutional principles and his libertarian skepticism of governmental that is deeply rooted in the American ethos.

If Vietnam is the source of McCain's moral high ground, it is also the source of his vulnerability in this debate. McCain has been an unmatched advocate of military intervention in recent years. At the same time, he fails to see that the Vietnam experience that took years of his life remains pivotal to American skepticism when our leaders sound the trumpets for a new war. The Gulf of Tonkin resolution that launched that decade-long war turned out to be predicated on a lie, and the communist regime that we feared is now our trading partner and ally. The Vietnam experience was followed by other wars and missteps that further demonstrated the unpredictable consequences of our war policies. In the 1980s, we partnered with Saudi Arabia to build an Islamist force to defeat the Soviet Union in Afghanistan, only to watch those Islamists morph into the Taliban, Al Qaeda and ultimately ISIS. In the 2000s, we went to war in Iraq on false pretenses to--in the minds of the Neocons--to lay the foundation for a democratic transformation of the Arab world, only to wake up to the realization that we had delivered Iraq into Iran's sphere of influence.

We have learned through painful experience that power on the battlefield is not enough to win a war. During the Vietnam War, Charles Colson, a senior aid to President Richard Nixon, had a plaque on his wall that said "When you've got 'em by the balls, their hearts and minds will follow." That slogan summed up what was mistaken about our war policies. It turns out that it simply is not true. Hearts and minds do not follow, they generally go in the opposite direction. And people have long memories.

ISIS leader Abu Bakr al-Baghdadi has proven to be a skillful manipulator of the American psyche. He has used public beheadings and threats to whip up our emotions to draw us into a ground war, and for good reason. Fighting America mano-a-mano would elevate ISIS's prestige as the front line of Islam's battle against the West. It would be a powerful recruiting tool and build support within Muslim communities across the world that harbor resentments against America and the west. And Baghdadi's efforts have been successful. While a few months ago, the consensus across the political spectrum was that we would never send ground troops to this new war, now Speaker of the House John Boehner has suggested that it is inevitable, that we have "no choice."

Rand Paul and John McCain should debate why, given our history in recent wars and our history in the region, going to war with ISIS is the best approach for achieving our goals.

ISIS has many enemies in the region, and most of them have armies with far greater capability than ISIS. According to Wikipedia, Turkey, Iran and Saudi Arabia have between them over 1.25 million active duty military personnel, or just 150,000 fewer than the active personnel of the United States armed forces. Add to that the quarter million Iraqi Kurdish Peshmerga force and the quarter million Syrian army and one can safely assert that the frontline states that are most immediately threatened by ISIS have the military capacity to deal with the threat that ISIS poses to the region.

But each of these countries has other agendas, and as long as we are prepared to fight ISIS in their stead, they will not come together to address the threat that they each face. And certainly, each of them understands the threat that an American presence on the ground would create a galvanizing force for ISIS. This is a fight for the hearts and minds of Sunni Islam, in the region and worldwide. It is a fight that Muslims must lead, that Muslims must win.

If we expand our fight with ISIS, the outcome will not be what we expect. Despite all of our experience over the years, we still seem to ignore the fact that our presence on the ground changes things. Baghdadi understands this well. Every fighter killed by an American will win him three new recruits. Every photograph of a maimed Muslim mother holding a dead Muslim baby will amplify resentments toward America and increase the sympathy for and support of ISIS in Muslim communities across the world. How can he lose that fight?

Rand Paul and John McCain must debate this war. This is not a Republican squabble, it is about whether we are going to go to war, what we hope to achieve and what we have learned from the past. We cannot let Abu Bakr al-Baghdadi force us into a war of his choosing. If we are to go, it must be our choice, with our eyes wide open, with our leaders explaining to us what we hope to achieve, and why we expect those results to be achievable. We should have this debate, and we should have it now.