Monthly Archives: January 2010

The Supreme Court has made an important ruling on campaign finance.

McCain-Feingold required that [corporations] channel their campaign spending by creating a special fund, known as a political action committee, which can accept donations from employees, shareholders and other affiliates. Advocates argued that the law was a valid way to prevent special-interest funds from distorting elections.

But Justice Kennedy wrote [for the 5-4 majority] that the effort to divide corporate political spending into legal and illegal forms chilled political speech. “When government seeks to use its full power, including the criminal law, to command where a person may get his or her information or what distrusted source he or she may not hear, it uses censorship to control thought,” he wrote. “This is unlawful.”

To understand the background, and to see why this is a bad, needlessly sweeping, decision, read these columns by Stuart Taylor: Campaign money and Chief Justice, and Campaign finance and corporations. Back in September, Taylor wrote:

The Supreme Court, especially Chief Justice John Roberts, is at a crossroads.

The immediate issue is whether to demolish Congress’s overly broad, 62-year-old ban on corporate spending in federal elections or, instead, carve out a sensible exception.

The broader question is whether Roberts and Justice Samuel Alito will aggravate the Court’s polarization and give plausibility to charges of conservative judicial activism by providing the fourth and fifth votes for demolition of the ban, and of two important precedents as well…

Roberts and Alito would thereby be passing up a golden opportunity for principled compromise held out by liberal Justice John Paul Stevens. He credited a National Rifle Association amicus brief, by conservative lawyer Charles Cooper, with suggesting (as its second-favorite outcome) what Stevens called “the wisest narrow solution of the problem before us.” That would be excising with a scalpel, not a meat ax, the one serious First Amendment defect in the campaign finance rules now before the Court.

The defect is Congress’s decision in adopting the 2002 McCain-Feingold law to add to its justifiable ban on “electioneering” broadcast ads by business corporations an utterly unjustified amendment by the late Sen. Paul Wellstone, D-Minn., extending the ban to nonprofit ideological corporations. These include the NRA, the Sierra Club, the ACLU, Citizens United, and other large and small groups of like-minded individuals who want to pool their funds to promote their political views…

The Wellstone amendment’s transparent purpose was, as supporters made clear in floor debate, to muffle criticism (“negative attack ads”) of themselves and other incumbents. The justices should strike down the Wellstone amendment, as Stevens suggested, while leaving intact the McCain-Feingold ban on “electioneering”…

They chose the meat ax.

Dana Milbank is right.

For Democrats, the only good thing to come from Tuesday’s loss of the Senate election in Massachusetts is this: It could wipe the grin off Robert Gibbs’s face.

I think the White House spokesman is a small but not negligible part of Obama’s problem. Gibbs was never all that appealing, as far as I could see, but he’s become a downright drawback lately. To get away with being annoyed by every question you are asked, you have to have viewers on your side. He did to begin with, but no longer.

Gibbs acts as though he’s playing himself in the movie version of his job. In this imaginary film, he is the smart-alecky press secretary, offering zippy comebacks and cracking jokes to make his questioners look ridiculous. It’s no great feat to make reporters look bad, but this act also sends a televised image of a cocksure White House to ordinary Americans watching at home.

The best thing about Obama’s proposal for new restrictions on banks’ activities is the branding: you cannot do better than the “Volcker rule”. But how the rule would work, if it were ever adopted, is very unclear. No more “proprietary trading” by banks or institutions owning banks? Well, as Lex rightly says, it depends what you mean by proprietary trading.

The detail will make a huge difference. For example, pure proprietary trading – investment by the bank on its own, not clients’ behalf – at JPMorgan Chase contributes well below 1 per cent of revenues. But much client trading involves taking balance sheet positions and then holding them. So when does client work cross the line into prop trading?

Lex is right about something else too:

This is not a return to Glass-Steagall. It is a targeted attack on specific businesses that the government does not wish to back. Yes, those activities can be risky. They will require regulation whether in or outside banks. They were also not the cause of most bank losses.

Exactly.

Suppose Goldman Sachs were to comply with the Volcker rule by relinquishing its bank status (which it adopted after the crisis was upon us, with the authorities’ blessing, to avail itself of the full range of assistance). When the next crisis comes round, would the Treasury be able to let Goldman fail? The Lehman experience answers the question. Lehman was not a commercial bank. If Goldman, having reverted to non-”bank” status, could not be allowed to fail, what would the Volcker rule have achieved? Whether or not Goldman is a bank, it has to be more tightly regulated.

This is mainly a political initiative, as the FT report notes, and not without political risk. One danger is creating and exposing disarray inside the Obama economic team. The new proposal, good or bad, is a U-turn. Geithner has spent months arguing for a different approach. His days must now be numbered. (In Britain, his position would be described as “unassailable”.)

The other risk is Volcker himself. If Obama intends to use him as front-man for populist bank-bashing, I’d bet that before long he will regret it. Volcker is forthright, immensely experienced and widely respected. That is why he is so valuable. But he is also apolitical, fiercely independent, and nobody’s shill. Not the ideal pitch-man.

The message Massachusetts sent Washington tonight was shatteringly loud, but not so clear. A stunning, astonishing reversal for the Democrats. But what does it mean?

Since Brown was a pretty good candidate and Coakley a remarkably bad one, you could argue that it means nothing, really. That is what some Democrats will be inclined to say. (If Joseph Kennedy, nephew of Ted, had run for the seat, Paul Begala said on CNN after the result was announced, the Democrats would have won by a landslide.) Coakley’s awfulness muddles the analysis, but this response smacks of wishful thinking. Obviously, a weak Democratic candidate still ought to have won in such a liberal state. Anyway, even if it were true that this setback is down to one bad candidate, it would be reckless for the party to say so and dismiss it. The Democrats have to show they are paying attention.

The election was all about anger, according to the commentary of the past few days. But what were the voters angry about? The prospect that Democrats in Congress will push through a healthcare bill that a majority of voters (albeit a narrow one) dislikes? This seems less plausible in Massachusetts than it would in most other states, because Massachusetts already has Obamacare lite. Voters there, whatever they may think about the issue – wherever they stand on the pros and cons of mandates and widened coverage, having experienced them – do not have much at stake.

So were they saying they are angry about the economy? Of course. Washington should put its focus on jobs, jobs, jobs. But if that is the message, how are Democrats supposed to respond? More government borrowing, another fiscal stimulus? This cannot be right: polls say voters are also angry about public spending, public debt, and the prospect of higher taxes. The administration cannot create jobs, jobs, jobs, just by saying so. And impotent expressions of concern aren’t going to win many people round.

That leaves anger at the banks and the bail-outs. This is much more promising, and the administration is already on the case. “We want our money back, and we’re going to get it,” the president has said. Just before the Massachusetts contest, Robert Gibbs told reporters that a main theme in 2010 will be asking  voters “whether the people they have in Washington are on the side of protecting the big banks, whether they’re on the side of protecting the big oil companies, whether they’re on the side of protecting insurance companies, or whether they’re on the people’s side.” (Careful, it’s a trick question.)

I’m not sure Obama is cut out for Chavez-style populism. It does not sit well with his calm, intellectual demeanour. It just looks false. And that is not the Obama the country elected. I don’t think it will work.

Instead of listening to the left of the party, which wants him to toughen up his anti-capitalist line, I’d like Obama to listen to the independents who seem to have shifted in droves to the Republican side in Massachusetts. Hear the message this way: “You promised to change the way Washington works. You promised to force the parties to work together, and to make policy in the open. You promised to stop the back-room deals. You broke your word. You gave us Washington as usual, only more so. It’s trench warfare on Capitol Hill, and you surrendered your leadership to partisan Democrats. You went along with their stimulus plans, and you are ready to go along with their healthcare reform. You gave us a crippled, polarised Congress, and political horse-trading at its most squalid. Do something about it.”

Why Massachusetts doesn’t matter. Paul Waldman, American Prospect. File under “Death-Wish Democrats”.

Restoring faith in financial markets. John Bogle, WSJ. Institutional investors and corporate stewardship: a neglected aspect of the financial crisis.

Why America and China will clash. Gideon Rachman, FT

In a recent column, Paul Krugman says:

The conventional wisdom seems to be that President Obama tried to do too much – in particular, that he should have put health care on one side and focused on the economy.

I disagree. The Obama administration’s troubles are the result not of excessive ambition, but of policy and political misjudgments. The stimulus was too small; policy toward the banks wasn’t tough enough; and Mr. Obama didn’t do what Ronald Reagan, who also faced a poor economy early in his administration, did – namely, shelter himself from criticism with a narrative that placed the blame on previous administrations.

If you need a refresher on the opposing view – on why aiming to reform heathcare was a “colossal miscalculation” – see Charlie Cook.

The latest unemployment and housing numbers underscore the folly of their decision to pay so much attention to health care and climate change instead of focusing on the economy “like a laser beam,” as President Clinton pledged to do during his 1992 campaign. Although no one can fairly accuse Obama and his party’s leaders of ignoring the economy, they certainly haven’t focused on it like a laser beam.

Cook is wrong and Krugman is right. Healthcare reform was neither a fatal distraction nor an inessential that can wait. Far from being beside the point in current circumstances, it is especially timely. It confronts a crucial aspect of economic insecurity – the fear that losing your job will also cost you your health insurance. Its rightful place was front and centre in the economic programme. With shrewder marketing, the administration could have put it there.

What policies would a more “laser-like” focus on the economy have produced anyway? Name me one. It wasn’t health reform that blocked a bigger stimulus. (And even with a bigger stimulus, the economy would still have suffered a brutal recession: the politics of a tighter focus yielding no results might easily have been even worse.)

No question, Obama bungled healthcare reform – by turning the project over to Congress, which voters don’t trust to do anything; by failing to make the case for a specific reform; and in general by seeming so passive about where this massive undertaking ended up. His mistake was not too much ambition, but too little engagement. More generally, I think the advocates of reform have failed their cause. They formed no consensus among themselves about what to do, and have spent more time arguing bitterly with each other than presenting a proposal to the public. Obama needed to lead the country on this. He chose not to.

I agree with Krugman about the stimulus. He is right that it should have been bigger. But the fact that it wasn’t is partly the fault of Krugman and other liberals. At the time, they cared more about the mix of the stimulus – they wanted maximum spending increases and minimum tax cuts – than about its overall size. Using bigger tax cuts to enlarge the stimulus could have been politically feasible. It would have brought some Republicans on side. The option was not seriously explored. Too many Democrats were aghast at the idea of co-operating with Republicans to cut taxes.

Whether policy towards the banks was tough enough is debatable. In some ways, again I agree with Krugman. Certainly, a lot of work needs to be done to lessen the risk of another crisis, and the banks will oppose most of it. But so far as stabilizing the economy in the short term goes, the policy has worked after a fashion. When Krugman expressed despair over the Geithner plan last March, saying it was almost certain to fail, he was wrong.

Krugman’s other point – why doesn’t Obama learn from Reagan and Carter, and blame everything on Bush? – I find simply bewildering. Obama is blaming Bush, for heaven’s sake, and no doubt rightly. But how much more could he do it? This is a case not of missed opportunity, but of diminishing returns.

Taliban attacks Kabul. Dexter Filkins, NYT. Interesting that “Monday’s gun battle was notable for the absence of American soldiers: a small group of commandos from New Zealand were the only Western soldiers on the scene.”

Wake-up call for Obama. Robert Kuttner, Huffington Post. A liberal perspective on what went wrong. I agree with Kuttner that “Deferring to the House and Senate was fine up to a point, but this was an issue where the president needed to lead as only presidents can–in order to frame the debate and define the stakes.” The rest of Kuttner’s argument is more debatable, but interesting.

The Guantanamo “suicides”. Scott Horton, Harper’s (thanks, Browser)

At the laundromat. NR Kleinfield, NYT (ditto)

Moscow’s stray dogs. Susanne Sternthal, FT

Democrats are far too preoccupied with how to ignore a defeat in Massachusetts, if it turns out that they lose tomorrow. Do they try to delay Brown’s arrival in the Senate? Do they try to push health reform through with reconciliation? Does the House pass the unamended Senate bill, avoiding the need for another vote?

Good questions, no doubt, and not easy to answer. There are pros and cons in each case. But it would be a great error for Democrats to concentrate on these tactical matters as though the scare, let alone outright defeat, in Massachusetts did not raise bigger questions. Coakley might still win, of course. (Nate Silver says the race is too close to call.) But even if she ekes out a narrow victory, Democrats urgently need to stop and think–not about how to cram through health reform while they can, but about why everything is going so wrong.

On the face of it, what is happening in Massachusetts is not politics as usual. Maybe the Coakley embarrassment can be dismissed. Certainly, she has been a pitiful candidate. But at the very least this needs to be argued through, not taken as read. Democrats need to recover some sense of shock at what the polls in Massachusetts are saying.

They also need to ask what the electorate will make of a response that says, “We don’t care what the voters think. We know best.” I support healthcare reform; for all its flaws, I think the Senate bill is a big step forward. But supporters of the bill must take pause at its unpopularity, which the polls in Massachusetts underline. The plain fact is, the Democrats have failed to make their case. They need to ask why, and start trying to fix it. Finding cunning ways to carry on regardless sends a message of contempt to the electorate, and one thing we know is that the electorate always gets the last word.

Bromley illustration

Whenever you wonder if rage at Wall Street is getting a little out of hand, some titan of the industry speaks up and makes you think, “Let’s go down there and smash some windows.”

Top banking executives appeared last week before the Financial Crisis Inquiry Commission, set up by Congress to look into the debacle. Lloyd Blankfein of Goldman Sachs and Jamie Dimon of JPMorgan Chase were far from contrite. Both said how well their companies were doing despite the crisis, which had been a nuisance, to be sure, but more an act of nature than something their industry brought about. “There are a number of things we could have done better,” Mr Dimon conceded graciously.

When you measure that complacency against the harm the slump has inflicted on millions of innocent bystanders, rage seems the only apt response. Revenge is called for. How about a fine, to punish the bandits and show them who’s boss?

The remainder of this article can be read here.

Maybe Obama can’t. Edward Luce, FT

Obama needs to get tough. The Economist

The fall of Obama. Charles Krauthammer, RCP

Bankers without a clue. Paul Krugman, NYT

Clive Crook’s blog

This blog is no longer updated but it remains open as an archive.

I have been the FT's Washington columnist since April 2007. I moved from Britain to the US in 2005 to write for the Atlantic Monthly and the National Journal after 20 years working at the Economist, most recently as deputy editor. I write mainly about the intersection of politics and economics.

Clive Crook’s blog: A guide

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