Arlenmania is Running Wild

Obviously, the big news today was Sen. Arlen Specter's (?-PA) switch from the Republican to Democratic parties. But how big of news was it? It was big news in terms of the 24-hour news cycle mainly because it's a slow Tuesday and there's not much else to talk about. In fact, it's possible that the timing of this (very) surprise announcement was orchestrated to land on just such a day. In the long term, though, the impact is harder to measure.

Unlike when James Jeffords switched from the Republican to Democratic caucus in 2001, this switch does not change the balance of power in the Senate, but it does put Democrats closer to the much overhyped number of 60 U.S. Senators. When Al Franken of Minnesota is seated (and it's a matter of when, not if; and I've been meaning to blog about that matter for a while now), Democrats will have those 60 seats, equal to the number of votes it takes to end a filibuster. The problem is that cloture votes (the technical term for voting to end a filibuster) are often not party-line votes. Democrats have already invoked cloture on several contentious bills by winning the support of a few moderate Republicans, often including Specter. Further, more moderate Democrats will sometimes cross lines to stand with Republicans on cloture motions for certain bills they oppose. Given that Specter has pledged to help Democrats and support President Obama's agenda, it's likely that he will side with Democrats on most, but probably not all cloture motions. However, he might have very well done that anyway.

In the end, the number is instances where Democrats get exactly 60 votes for cloture, consisting of 59 votes from the pre-existing Democrats and the final one from Specter, is probably going to be pretty small. And some of those instances likely would have occurred even without this party switch. So as far as the operation of the 111th Congress, this is likely not much of a game-changer.

However, this switch is part of a larger narrative about the marginalization of the Republican Party and it's contraction into an extremist and regional minority party. I've talked about this in an earlier post, about how many of the northeast Republicans I respect have either abandoned the GOP or been vocally opposed to its lurch to the hard right. Specter joins a long list. The buzz on other blogs has been about whether Sen. Olympia Snowe (R-ME), who is even more moderate to liberal than Specter, will jump over next. I personally think she's more likely to run for governor than to switch parties, but the point is, it's very hard to be a moderate and feel at home in the Republican caucus. (Or be a woman. Shortly after the Specter switch, the GOP announced it was creating a panel to help re-brand the Republican Party. There was not a single woman on the panel. Methinks me see part of the problem.) Specter's switch is not a seminal moment in party politics. It's just another drop, albeit bigger than most, in a long, slow drip.


This should, however, make the 2010 Pennsylvania Senate election bully good entertainment. Specter will run in the Democratic primary, and party leaders have pledged their full support and are trying to clear the field of challengers. A lot Pennsylvania Democrats are deeply unhappy at the thought of having Specter as their nominee. Personally, I have major problems with the effort to clear Specter as free a path as possible. The nominee for Senate should be chosen by the voters of the state, not by the party leaders. They may well choose to support Specter. I personally have liked and respected Specter a lot for a long time. However, Pennsylvania is a state of over 12 million people that gets exactly two U.S. Senators. "Like and respect" is, in and of itself, not enough to convince me that someone is the best choice in the entire state for such an important position. As such, I'm withholding judgment on whether to support Specter until I see just how effective and support he is as a member of our caucus. Either way, I very much would like to see a strong, progressive challenger to Specter in the primary. Not only is it good for democracy, but it's likely to pressure Specter into making better, more progressive votes for the rest of this term.

On the Republican side, the conventional wisdom is that this clears the field for ultra-wingnut anti-government activist Pat Toomey to win the Republican nomination. That's possible, but Toomey is utterly unelectable in a general election in Pennsylvania, and national Republicans know this. Someone will step up and carry the flag for moderates in the Republican primary. That person has their work cut out for them in the increasingly radical GOP, but will certainly garner some votes, especially since it will be someone who has not spent 30 years making enemies among conservatives the way Specter has. Particularly if Toomey's vote is split by someone with deeper ties to the socially conservative wing of the party, a moderate could very well slip through. If that happens, Democrats would have a competitive race on their hands instead of a cakewalk. In fact, it wouldn't surprise me terribly if neither Specter nor Toomey were on the ballot in November's general election.

So that's where the Specter defection leaves us. It's a great storyline for Democrats, one more in the longer story about the death of the Republican Party in the northeast. I was very excited about it, not least of all because my long familiarity with Arlen himself. But as far as how it affects the rest of the 111th Congress, the 2010 elections and beyond, there are many more moving parts in play than the pundits really seem to grasp.

Bank Run Burr

This has been widely reported elsewhere in the liberal blogosphere, but hasn’t garnered nearly as much attention as it should from the local traditional media, so I justified my first cut-and-paste entry for this outrageous story:

The Hill, a non-partisan political briefing, reported last week that Sen. Richard Burr (R-NC) said during a speech that when the financial crisis began he encouraged his wife to withdraw all the cash she possibly could from their local bank. Burr elaborated, “On Friday night, I called my wife and I said, ‘Brooke, I am not coming home this weekend. I will call you on Monday. Tonight, I want you to go to the ATM machine, and I want you to draw out everything it will let you take. And I want you to tomorrow, and I want you to go Sunday.’ I was convinced on Friday night that if you put a plastic card in an ATM machine the last thing you were going to get was cash.”

What Burr encouraged his wife to do was basically make a “run” on their bank. As I’ve written before, banks keep on hand at any given time only a fraction of the money needed to cover all their deposits, because at any given time only a small fraction of depositors will want to make withdrawals. The rest gets lent out to homeowners, business owners and the like, and this lending is the pump that keeps our economy moving. (Much of our current economic malaise has occurred as a result of a contraction in lending.) If, though, people begin to think that the bank is in danger of running out of money, then they’ll rush to make withdrawals, and the bank really could run out of money—even if the perceived threat to the bank was totally unfounded before the run started, sort of like what was depicted in It’s a Wonderful Life.

Bank runs are a systemic economic risk and were a major cause of the Great Depression. As a result of the lessons we learned from that, the U.S. government created something called the Federal Deposit Insurance Corporation. The FDIC insures all bank deposits up to $250,000—if your bank goes under, you as a depositor are completely protected by the FDIC. Not only did this make depositors safe from bank runs, it made bank runs pretty much obsolete because the whole reason for making one was completely obviated—unless, you know, a bunch of people lost their minds and sent their wives rushing to the ATM at the first sign of trouble because they were too ignorant to understand how the process works. So, even if Sen. Burr’s bank was in danger (which it wasn’t), there was absolutely no reason to rush to the ATM, and the fact that Burr asked his wife to do this shows an alarming lack of banking knowledge.

On top of that, there’s an ethical question. If every one in America tried to do what Burr did, it would have imperiled our banking system and our economy. In fact, at the time that Burr was sending his wife ATM-hopping, he was publicly telling constituents that the economy was fine and that they shouldn’t worry. What we have here, then, is a U.S. Senator taking the information he was privileged to, and using in an effort to protect his own personal financial interest, while telling the rest of the state to do something totally different. The fact that the effort was foolish and unhelpful doesn’t change the fact that it suggests Sen. Burr seriously breached his civic duty to advance his own selfish interests.

I would say that there’s an added layer of stupidity here in that the story only came to light because Burr talked about it in several of his speeches, but it turns out that Burr fairly accurately pegged the intelligence of his audience. When his remarks were first reported by the Hendersonville Times-News, the headline read, “Sen. Burr speaks on economy,” and the shocking boasts of bank running were buried near the bottom of the story, suggesting that the Times-News deserves some sort of anti-Pulitzer for negligent journalism. The comments only became a national story when The Hill picked them up.

To be honest, Richard Burr has never really been known as the sharpest knife in the drawer, so this is perhaps less of a surprise than it should be. Burr is a prime example of the phenomenon I discussed in “Woody Gets an Election,” about our remarkable proclivity for promoting the intellectually unremarkable. As a result of his most recent fiasco, I’ve decided that I need to start chronicling such examples with a recognition that I’m going to call, naturally, a Woody. Sen. Burr thus gets the dishonor of being the very first elected official I’m memorializing in this way. So, congratulations Sen. Richard “Bank Run” Burr, R-NC … you’ve got a Woody.

Luckily for North Carolina, Sen. Burr, like almost half the Republican caucus, is up for re-election in 2010. Doubly lucky, Democrats have an outstanding potential candidate who is hopefully just weeks or days away from announcing his candidacy to challenge Sen. Burr: Attorney General and former State Senate Majority Leader Roy Cooper. Cooper is best known statewide for exonerating the Duke lacrosse suspects, but also highly regarded for his decade-long service as Attorney General. If he throws his hat into the ring, I suspect there will be a lot more North Carolinians making runs to their local ATM—but this time to help support the Cooper for Senate campaign.

Talkin' 'Bout My Generation

There’s been a lot of news this month concerning the legal status of gay marriage. First, the Iowa Supreme Court ruled unanimously that the Iowa constitution precluded a ban on gay marriage, in effect legalizing the practice. The ruling was significant because it happened in Iowa, for reasons I’ll get into later. Soon after, Vermont’s legislature legalized gay marriage. This got somewhat less attention because, well, it’s Vermont, but the passage was also significant because Vermont became the first state to legalize gay marriage via an act of the legislature and not a court decision. In fact, the Vermont bill received over two-third of the vote in both houses. Finally, getting even less attention, the Washington D.C. city council voted unanimously to recognize same-sex marriages performed elsewhere and will soon consider a full-fledged gay marriage bill. This too is significant, because everything the D.C. city council does is subject to a review by Congress (because heaven forbid the people of the District have any right to run their own business) and so it sets up the possibility of a contentious vote on the issue in Congress.

Conservatives, fresh off of getting waxed in everyway imaginable in ’06 and ‘08, think that, after two straight cycles of building failed election strategies around divisive wedge issues, they finally have the divisive wedge issue that will lead them back to electoral success. The reality, however, is that if conservatives are politically savvy (and all the evidence suggests they’re not) they should actually be very concerned over the prospect that gay rights issues could play a large role in the 2012 Republican nomination contest. That’s because a campaign for the votes of people opposed to gay marriage is basically a campaign for the votes of old people.

I should start by correcting a misconception that has persisted across both time and party lines, the belief that people are more likely to be liberal in their youth, and then as a cohort become more conservative as they age. There’s even an old joke about it that goes, “If you’re not voting Democrat when you’re 20, you don’t have a heart. If you’re not voting Republican by 40, you don’t have a brain.”

The evidence, however, points to something much different. A recent study by researchers at Pennsylvania State University and the University of Vermont found that, if anything, people tend to become more liberal and tolerant as they age. What drives the stereotype is not that people become more conservative, but that each age cohort brings its own world view to the electorate. Today’s young voters are broadly—though not entirely—tolerant on issues of racial and religious diversity, gay marriage and immigration. Today’s older voters by and large aren’t. That’s not because those voters became more conservative as they aged; rather, it’s because fifty years ago, people were often much more hostile to those things. My age cohort is far more liberal than the one born fifty years ago, and as a group, we’ll likely retain that character as long as we continue to vote.

Similarly, people don’t gradually shift their party preference as they age. Most people, once they come to identify strongly with one party (usually defined as voting for that party in three straight elections), keep that prefernce for life. If people do shift parties, it’s often as part of a sudden, drastic change in political outlook, not as a gradual drift. As a result, traditionally there has not been much disparity in presidential elections between how young people voted and how the nation as a whole voted. From 1976 through 2000, the share of young people voting Democratic was always fairly close to the national figure. The one way in which young people did vote differently was in their increased willingness to vote for independents, including centrists like John Anderson and Ross Perot. But overperformance by Democrats among youths was always small or negligible. (The 26th Amendment, enfranchising everyone over the age of 18, wasn’t passed until 1971, so there’s no useful data from before that date.)

That started to change in 2004, when John Kerry won 54% of the youth vote against 48% of the overall vote. The six-point spread is significant, and comes across as being more so because it spans the magical 50% line. At the time, I hypothesized, mostly on anecdotal evidence, that Kerry’s spread was likely even stronger among voters 18-25, i.e., the ones who would still count as young voters in 2008, when a Democratic candidate would likely perform even better among young voters. That did in fact happen, and while it certainly doesn’t prove the hypothesis, the evidence from 2008 is consistent with it.

In 2008, Barack Obama won 66% of young voters, against 53% overall. That is the largest figure, both in percent of young voters won and difference from the overall vote, put up by any presidential candidate, from any party, since the passage of the 26th Amendment. If my hypothesis is correct, many of the young Obama voters were voting for the Democratic presidential candidate for the second or even third time; the spread did not come entirely—or even largely—from first-time voters swept up in Obamania. What that would represent, then, is a cohort of voters with an overwhelming and fairly well entrenched partisan preference toward Democrats, and who are unlikely to abandon that preference absent some sort of drastic realignment between the two major parties.

So if conservatives are assuming that people my age are one day going to wake up, realize that they’ve always been closet conservatives led astray by the Obama charisma, and start voting Republican, they’re deeply mistaken. This does seem to be their theory, though. The idea seems to be that even though Obama ran on an unabashedly liberal agenda and is now doing pretty much exactly what he promised to do, that young people will quickly realize that all this competent government stuff isn’t what we voted for and then tack hard to the right. I suppose that’s not impossible, but there’s no particular evidence to suggest that it would ever happen. In fact, it seems to be predicated on the belief that we, as a generation, are not very intelligent.

The Republican strategy for winning back the young voters that are absolutely repulsed by their ideology appears to be as follows: “We’ll keep doing what we’ve always done … but more of it!” Ramping up the culture war against gay rights would fall neatly into the “but more of it!” category. The problem is that young voters just aren’t that interested in telling other people how to run their own lives. That’s not to say our generation is overwhelmingly actually pro gay marriage per se. It’s just that we’re not really that troubled that other people have come to life decisions that are different than ours.

This shows in exit polling on social issues. Even though Proposition 8 was approved by California voters, 61% of young voters opposed it. Support for a live-and-let-live attitude for gay couples polls better among young people than it does for any other age bracket. Nate Silver, who does all kinds of incredibly insightful things with polling data, was able to construct a highly predictive model of how states would vote on gay marriage bans using only three variables, and the most important of those was time—the further in future the vote happens, the less likely people are to codify discrimination against gays. As such, Iowa and Vermont will not likely be the only states to liberalize marriage laws in the near future.

I mentioned that the Iowa decision was important because it happened in Iowa. Beside the fact that Iowa is the first state away from the two coasts to legalize gay marriage, and thus take the debate directly into middle America, its also crucial because Iowa and its famous caucuses will be disproportionately influential in choosing the next Republican presidential candidate. And while the nation as a whole is really not moved by the gay marriage issue, Republican primary voters are, and it’s reasonable to think that this decision will make it more likely that Iowa Republicans will choose a candidate who is strongly anti-gay marriage.

That, in and of itself, actually isn’t that problematic. The problem is that Iowa conservatives aren’t likely to get behind a candidate for whom a dispassionate opposition to gay marriage is simply one issue out of many in his platform. This is likely to turn into a contest over who can do the best Chicken Little spiel about how gay marriage will destroy everything we hold dear. And this goes back to everything I said in the “Woody Gets an Election” post. You might well find a candidate with a principled, non-homophobic opposition to gay marriage as part of a range of reasonable positions on other issues. But someone who claims that gay marriage is the seminal issue of our time and must be stopped before it kills America is a nut, and probably not just a nut about that issues. That person likely has a diversified portfolio of wingnut pipe dreams, like a Mike Huckabee or Sarah Palin (both of whom are anathema to young people in a way that, say, pro-civil union Utah Gov. Jon Huntsman would not be).

In short, the slew of legal advancements this month actually makes it slightly more likely that Republicans will nominate a candidate for president in 2012 who favors deeply intrusive regulations on social issues and thus is very unappealing to my age group. Republicans would like to think that the Iowa decision and others like it are their ticket back to relevance. But if they want to abdicate the youth vote for a few more cycles and thus create a Democratic cohort so large and calcified that it ensures the irrelevancy of movement conservatism for decades, my advice to them is to keep doing what they’ve always done … but more of it.

We're Looking for a Few Good Banks

I haven’t blogged much lately, partly because I’ve been busy, and partly because it’s so relieving to finally have adults back in charge of the federal government. By and large, the Obama administration has done a lot right in the last three months or so. The federal budget looks spectacularly progressive, perhaps even courageously so. I’m particularly intrigued by the proposed changes in the defense budget, and hopefully I’ll blog about those later. The principles being articulated about health care reform, climate change and foreign policy all look promising. So, in all, there’s a lot to be happy about.

However, there is one area where the administration’s performance has been decidedly underwhelming: its response to the banking crisis. The underlying problem is transparent. America’s banks are, to varying degrees, saddled with so-called “toxic assets,” which are basically bets on the housing market that went bad when the real estate bubble popped. We’ll call them Compromised Revenue Asset Products, or, for short, CRAP. Our banks are holding too much crap, and nobody wants to buy any crap. Because of that, banks have cut back sharply on lending, and lending is the engine that drives our economy. Our economy has engine trouble right now, why is why the economy isn’t going anywhere.

So how do we fix this problem? Treasury Secretary Timothy Geithner has proposed a plan, for lack of a better word, that looks a lot like the “cash for trash” schemes proffered by his predecessor, Hank Paulsen. The idea behind giving cash for trash is that if we buy the banks’ crap at inflated prices, that will both inject the capital that banks need and get the crap off their balance sheets, allowing the banks to resume normal lending. And it is true that if we give banks sufficiently ungodly sums of money and take on enough crap, then, yes, eventually that would achieve the desired result. But this approach would likely be exceedingly expensive and inefficient, without even producing the fastest results. And when we’re talking about the hundreds of billions, if not trillions, that will need to be committed to rescuing the system, thrift and efficiency are important objectives.

The problem with the cash for trash schemes, of which there have been several subtly different varieties proposed in search of one that makes sense, is that they all involve handing over large amounts of money to the very same banks that got us into this mess, purchasing their crap for prices that are deliberately much higher than what the market would pay, without any accountability for what the banks do with that capital. They also envision the creation of a “bad bank,” which is a pretty standard tactic in bank rescues. A bad bank, stewarded by the government, collects all the crap, and those assets do have at least some value. The bad bank then manages the holding and orderly sale of all the crap, and in this case, once the real estate market recovers, those assets should gain some more value. The taxpayers, thus, can recover some of the cost of the bailout. But the likely outcome is that the trash we get never be worth more than a fraction of the cash we paid.

There are several better options out there. One option would simply be to nationalize any banks lacking enough capital to cover all its debts. This is the approach taken by Sweden during its banking crisis during the 1990s, and Sweden’s recovery is now used as a model for how to handle a banking crisis. Nationalization is probably the simplest and most well trodden road the administration could take. Basically, instead of using taxpayer money to buy crap, we would use it to buy equity shares in the banks themselves. That way, when the market stabilized and the banks recovered, the equity shares could be sold at a profit. The state of the banks are such that in order to inject any meaningful amount of capital, the government would need to acquire so much equity that it would become a majority owner of the bank. I don’t particularly see a problem with that. There’s no reason why majority public ownership should impair an orderly recovery of the banking system.

This is probably the best alternative, and one that has been actively promoted by Nobel Prize winning economist and a personal favorite of mine, Paul Krugman. The problem is that the politics of such a proposal is wrought with danger for Obama. Conservatives have invested so much energy into bastardizing the words “nationalize” and “socialism” that any move to acquire equity in exchange for capital would set off rounds of panicked mouth-breathing about a government takeover of the economy. The fear that doing the right thing would have adverse political consequences for Obama and the rest of his agenda is probably a well founded one. Unfortunately, the administration has decided, it seems, to make a tactical decision not to invest political capital into even considering nationalization, even though the bank rescue is the single biggest obstacle to economic recovery. It requires strategic, as opposed to tactical, thinking and a willingness to invest copious amounts of political capital if need be.

So that’s disappointing. But there may be a way for the Treasury to revitalize the banking industry without giving massive giveaways to the banks, or courting the N-word. Rather than creating a “bad bank,” some economists, including another Nobel laureate, Joseph Stiglitz, think the government should create some good banks instead.

Besides the obvious semantic benefits of creating good banks instead of bad ones, the plan has a number of benefits over the cash for trash plans. First, you may have noticed that all the bank rescue plans involve buying banks’ bad assets, at inflated prices. No one seems to be considering buying the banks’ good assets, of which there are still plenty. Certainly the banks themselves would much rather sell off the crap and keep the good assets. What a good bank proposal would do is use the money allocated for TARP to purchase good assets from struggling banks. The Treasury would then form healthy banks that would be unencumbered by the old banks’ bad assets. These banks would be auctioned off to the private sector as quickly as is feasible—and there would likely be a market for shares in a bank with a totally clean bill of health. These banks would have freshly clean balance sheets and could then resume regular lending. As for the toxic assets, managing them would remain the responsibility of the responsibility of the banks that made the bad investments in the first place. The ugly business of managing a bad bank would fall to the companies that created the need for bad banks in the first place, while taxpayer money would flow to healthy banks with healthy assets, instead of putting the government in the business of overpaying for the privilege of establishing a bad bank.

More importantly, it would leave private businesses accountable for their mistakes. The cash for trash schemes are basically a form of lemon socialism. The banks made a lot of one-way bets on the housing market. If the bets paid off, they won; and if the bets didn’t pay off, then the taxpayer lost. Either way, it was a win-win for the banks. Under the good bank proposal, the banks that made bad bets become bad banks. Going forward, the moral hazard of bad lending is placed squarely on the parties who made the bad bets.

The good bank proposal is not a panacea or a perfect solution. In fact, it stands to be a lot more technically demanding than simple nationalization. But it does present the potential to rehabilitate the banking system without taking any political damage (even though the hit that might come from a nationalization plan would be totally unjustified) and, even more importantly, not affecting an unprecedented massive transfer of taxpayer money to the very same bankers who helped plunge the economy into recession in the first place. What both plans have in common is that they’re based around getting something of value for the people’s money, instead of offering up a massive handout to the most undeserving parties imaginable. My hopes that the administration will discard its obsession with handing out cash for trash and pursue such a strategy are minimal, but it’s worth noting the wealth of better options available to them and hoping against hope for a sudden fit of reason.