Passing The Ideological Buck

That was my suggested headline, but I really didn't like it; but I certainly didn't expect the editor to go all Latin on me instead.

IN THE ECONOMIC BLAME GAME, GREENSPAN OFFERS A MEA CULPA
East Valley Tribune, Oct. 26, 2008

In their increasingly desperate attempt to find something ideologically comfortable to blame for the credit crunch and recession, ‘wingers have grasped at any conceivable economic flotsam. “Pay no attention to that iceberg,” they cry, “because something else sank this Titanic!”

They first seized upon the Community Reinvestment Act. The CRA prohibits redlining, where banks refuse to lend where they take deposits. Of course, nothing in the CRA requires banks to make bad loans; the CRA prohibits banks from taking money out of a community where the bank isn’t willing to invest.

There are a couple of problems with blaming the CRA. First, ‘wingers have no explanation of how a 1977 law passed created the real estate and subprime bubble 25 years later. If banks managed to make CRA loans successfully for two decades, but then suddenly became wildly irresponsible, the problem isn’t the CRA.

More technically, as Robert Gordon of the Center for American Progress, and Ellen Seidman, former head of the Office of Thrift Regulation, have noted, the CRA only applies to federally-insured banks and thrifts, which accounted for about 25 percent of subprime loans; half of that market was controlled by independent mortgage companies not covered by CRA, and another 25 to 30 percent from bank subsidiaries and affiliates, which don’t have nearly as significant responsibilities under the CRA. Also, institutions covered by CRA made fewer such loans than did comparable exempt or partially-exempt lenders.

Finally, the CRA usually becomes an issue only when banks or thrifts seek to merge -- and the previous wave of bank mergers generally ended by 2001, just as the real estate boom, and subprime lending, took off. Blaming the CRA requires that you believe the Bush administration was serious about enforcing one, and only one, type of bank regulation.

Hey, ‘wingers, if it’s all the CRA’s fault, let’s trade the CRA for getting back the 1993 tax code. Deal?

The next attempt to pass the blame goes to Fannie Mae and Freddie Mac, which does have some plausibility because the two did participate, big time, in subprime lending. But Fannie and Freddie got to the party late, and while they contributed to the crisis, none of the ‘wingers can explain how bad real estate loans securitized or guaranteed by Fannie and Freddie, which have since been guaranteed by the U.S. government, brought down Lehmann Brothers, Bear Stearns, and AIG, or how low-income borrowers with bad loans have cratered the global financial system by falling behind on their mortgages.

At a congressional hearing last week, former Fed chairman Alan Greenspan, SEC chairman Christopher Cox, and former Treasury secretary John Snow each were asked if Fannie and Freddie were the cause of the financial crisis. All three said no.

Greenspan is an interesting case. He steadfastly argued against government regulation of financial derivatives. He said that we need not fear concentration in banking and investment, because “many of the larger risks are dramatically -- I should say, fully -- hedged.” But at the hearing last week, Greenspan conceded that his fundamental world view was flawed. As quoted in The New York Times:

“I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms,” Mr. Greenspan said.

Referring to his free-market ideology, Mr. Greenspan added: “I have found a flaw. I don’t know how significant or permanent it is. But I have been very distressed by that fact.”

Mr. Waxman pressed the former Fed chair to clarify his words. “In other words, you found that your view of the world, your ideology, was not right, it was not working,” Mr. Waxman said.

“Absolutely, precisely,” Mr. Greenspan replied.

If Alan Greenspan -- the High Priest of the Temple of Ayn Rand, the very face of Libertarian market triumphalism -- is rethinking his philosophy, then maybe the problem really wasn’t “too much government.” Not when it’s a GOP administration nationalizing the banks. Welcome to reality, ‘wingers!

Good Lord, The Tribune Backs Me Up

Some people might think a prosecutor shouldn't jump to conclusions and make erroneous charges based on newspaper articles that were later corrected by the newspaper. Apparently that doesn't include Andrew Thomas and his supporters.

I had toyed with the idea, in response to state Rep. Russell Pearce's attempt Friday to distract people from Thomas's mistakes and inaccurate charges, that I would in turn call for the Attorney General to investigate Pearce's call for the Attorney General to investigate how the Attorney General awarded a contract to my law firm for health care law specialty work used by the state for the Arizona Veterans Home. But I couldn't figure out where to put the jokes, or exactly how the AG could investigate the AG's investigation of the AG's office. Didn't bother Pearce, but I worry about those sorts of things.

I like the Tribune's headline better: "Tribune: Thomas accusations against Nelson wrong." (Key quote: "The Tribune found multiple inaccuracies within statements made by Thomas and his campaign.") Maybe Russell Pearce should investigate that.

Still Living Like Episcopalians and Voting Like Puerto Ricans

A new Gallup poll shows Obama now leading McCain among Jewish voters, 74-22:

The current proportion of U.S. Jews backing Obama is identical to the level of support the Democratic ticket of John Kerry and John Edwards received in the 2004 presidential election (74%). It is only slightly lower than what Al Gore and Joe Lieberman received in 2000 (80%) -- when the first Jewish American appeared on the presidential ticket of a major party.

Recent support for Obama is a bit higher among older Jews than among Jews younger than 55. According to combined Gallup Poll Daily tracking data from Sept. 1 through Oct. 21, an average of 74% of Jews aged 55 and older supported Obama for president across this period, compared with about two-thirds of younger Jews.

UPDATE: Franklin Foer makes the inevitable Sarah Silverman reference!

The 2008 Sam-n-Andy Guide for the Perplexed

It’s an unusual ballot for us here in Arizona this year, with pretty exciting candidates and really dispiriting propositions. I’ve been asked for this year’s guide to the props and judges, and there really isn’t much to say, but for the curious who want to submit their early ballots so the robocalls will stop already, here are Andy’s and my calls for 2008:

On the propositions, it is a very justifiable position to vote “no” on all if you’re in a hurry. But if you are one of those people who expect yourself to complete each ballot in full (like you get a prize if you vote for every office and question, but what the heck, I vote in SRP elections so I’m not one to criticize), or if you're in a really good mood when you complete your ballot, vote no on everything except the following weak “yes” votes:

Home warranties (201): A fairly interesting legal and political question. Developers have come up with CC&Rs for new communities that severely restrict warranty claims, both by individual homeowners and by associations, putting them into arbitration and limiting the time for raising claims. It’s a voluntary contract, you don’t have to buy into one of these CC&R communities, and I’ve drafted some of these provisions for clients myself. So this initiative resets the ground rules, mooting these CC&R provisions, because who actually reads (or understands) the CC&Rs before buying a home, and these days in Arizona you can’t buy a new home without having CC&Rs. It’s interesting, because a lot of the same people who want the state legislature to impose rules on HOAs would tend to oppose this initiative (and the “no” campaign is “stop lawsuit abuse.”) This one scrambles the usual right-left political divide, but I came down in favor of “consumer representatives” instead of “developers” (not that there are really any developers left in the current real estate market).

Employer sanctions fixes (202): So do you vote on what’s better (certainly not best) for public policy, which is these corrections to the 2006 anti-illegal immigrant initiative approved by the voters, or do you vote to “heighten the contradictions” by letting the heavily R business community stew in their own juices, they made their bed, why should we clean up for them after their pals Russell Pearce and Joe Arpaio, etc., all of which is a valid argument to vote no? This referendum basically keeps all of the bad stuff against individuals, but provides relief to the employers. You decide if that’s a good thing or not. I forget how I voted on this one, seriously.

Legislator pay (300): Like it has any chance of passing.

On the judges, no obvious clunkers, all deserve retention. There’s some grumbling on the left about some of these judges, but I’m especially supportive of Scott Bales on the Supreme Court and Ann Timmer on the Court of Appeals. Some lawyers don’t like Linda Akers but I voted for her. Akers used to be US Attorney for Arizona, and at the time (during the halcyon years of the George H. W. Bush administration) was seen as very partisan, but that’s another thing that George W. Bush has done for (to?) our country; the standards for politicization of US Attorneys has descended so much that Judge Akers is now a statesman. These days, even Democrats pine for the decency and standards of the Age of Gingrich.

Those Who Do Not Learn Economic History Are Doomed To Repeat It

That was my proposed headline, but the editor thought the headline needed less Santayana (and fewer verbs.)

WHY FEDERAL BUDGET IS NOT LIKE YOUR FAMILY FINANCES
East Valley Tribune, Oct. 19, 2008

With the recession already here, remember: Countries are not like people. Their budgets should work differently.

I thought we’d settled this argument in 1971 when Richard Nixon said “We are all Keynesians now.” But with the Republican Party becoming more extreme each year, what Nixon believed is apparently liberal heresy today.

John Maynard Keynes first noted that consumers and businesses, making rational individual decisions, could lead to less-than-optimum results for the overall economy. Keynes concluded that an economy could reach equilibrium at less than full employment, with insufficient aggregate demand resulting in higher unemployment and lower output than necessary.

Keynes saw two ways that government could help boost aggregate demand during slumps, monetary and fiscal policy. In the former, lower interest rates would make borrowing cheaper and encourage businesses to borrow and invest. For the latter, governments could invest in infrastructure, with a “multiplier” effect as spending creates construction jobs, giving more people income to buy things, which creates retail jobs, and so forth.

If the economy is heading for a recession, you’d lower interest rates and increase government spending. The opposite is true during a boom; to keep things from getting out of control, the government should raise interest rates, spend less, or raise taxes during good times to prevent asset bubbles and inflation. We forgot to be countercyclical on the way up -- but that’s no reason to forget on the way down.

Some ‘wingers still pretend to believe in supply-side economics, that lower tax rates somehow raises revenues. Even the Bush administration doesn’t believe that fairy tale anymore. And for the past 15 years, the economy acted exactly the opposite as supply-siders claimed. We raised taxes in 1993, and the economy boomed; George W. Bush’s 10-year tax cuts are still phasing in, and the economy is in recession. And even supply-siders believe in the economic multiplier effect of a Super Bowl; why wouldn’t something permanent, like a new university building or transit system, have the same, if not greater, multiplier effect?

During a recession, what should individuals do? Spend less, save more. It makes sense for individuals, but what if you’re a retail business, and your customers cut back? Last week, the Census Bureau announced preliminary September retail sales figures, which dropped 1.2 percent from August, and 4.3 percent in real terms from the previous year. In an economy dependent on consumer spending, consumers are spending less. It makes sense for individuals, but it’s bad in the aggregate.

What should businesses do? Sequoia Capital, a venture capital firm in Silicon Valley, summoned the CEOs of the businesses in which Sequoia invested; the only previous mandatory meeting was for during the dot.com bust. The companies were instructed to fire employees, reduce spending, curb investment, and cut salaries. Which is perfectly rational for each company, but means not only are consumers spending less, so are businesses -- and that’s even if they could get loans in the credit crunch.

We can’t expect lower interest rates to do much; official rates are historically low, and recent Federal Reserve moves haven’t resulted in spurring lending, because the banks are as scared of each other and the overall economy as are consumers and businesses. Again, it’s rational individual decisions leading to bad overall results.

The only cavalry that could ride over this gloomy event horizon is the government. Unless you want a really long recession, you should stop fretting about budget deficits. States and cities are cutting back; they have to have balanced budgets. Consumers and businesses are cutting back; they’re scared. You could cut their taxes, and they’d be too scared to spend.

We once had a president who, faced with a recession and loss of faith in the economy, had the government do the individually responsible thing. He cut spending, increased revenues to eliminate a deficit, and looked for voluntary efforts to bring the economy around. His name was Herbert Hoover.

So whenever you hear the government-should-act-like-a-family-budget analogy, remember: That’s Herbert Hoover talking! Your grandparents tried it, and they didn’t like it.

Chicago Marathon 2008

4:59:46, which is under 5 hours, but just barely. Photos are here. Results are here.

After last year, the marathon went to a color-coded system based on heat and humidity; we started at the yellow level, but by mile 15, the "threat level" was elevated to red (but with Gatorade instead of duct tape and plastic sheeting.) But it's probably that I'm just getting slower, too, and only have so many more marathons in me before I should leave it to the younger guys. Anybody have a sponsor entry to Boston to spare?

Health Care's Not Just An Issue To Us

Here's this week's column, which I originally wrote for the "He said, she said" Obama-McCain pieces the previous week, but the editor wanted more than one issue so this got bumped.

A BETTER PLAN, A BETTER COUNTRY
East Valley Tribune, Oct. 12, 2008

Few law firms these days are partnerships, but at mine we still refer to our colleagues as partners, and that's how we try to behave. We fuss endlessly over minor matters so everybody gets their say, and (on good days, anyway) worry about feelings almost, but not quite, as much as money.

Like most relationships, some days I drive my partners nuts and vice versa, but mostly we all pull in the same direction. One way we look out for each other is with health insurance.

One of my partners has a long-standing medical condition, completely unrelated to diet, activities, or lifestyle, which developed unexpectedly after law school so we can't blame heredity. The problem makes our annual search for group coverage more difficult and expensive. Most of us could get cheaper insurance for ourselves and our families without this medical problem in our group, but we're not going to abandon our friend and partner. Not only would it cut against the collegiality we strive to achieve, but forcing our partner to find separate coverage would be hugely expensive. A small savings for most would mean huge increases in costs for one - if an insurer would write a policy despite a serious preexisting condition.

The sailors may have calmed the seas by tossing Jonah overboard, but there's no guarantee an insurer would spit out our partner on dry land. (The more likely exit would be from the whale's other end.) Having a group means we cross-subsidize each other, because while one has a problem today, others could be the problem tomorrow, and we're all better off spreading that risk.

There's no magic to having health insurance tied to employment, and there are lots of reasons why you'd want to de-couple insurance from work. But there aren't that many other ways to form a group where we can share risk. We tried a voluntary group; we even joined the Arizona Hispanic Chamber of Commerce to get a group policy -- but that program fell apart as healthier individuals and groups opted for cheaper insurance, leaving only the less-healthy to face increasing premiums.

We don't want to risk the individual insurance market. It's not just tax policy that's keeping us out; as partners, we're taxed on our premiums. It's also because the individual market is more expensive, has higher administrative costs, and lets insurers pick and choose based on age, gender, geography, and preexisting conditions. Studies indicate that a typical family must pay more than $2,000 per year additional just to get the same coverage available in a group -- and the numbers would be far worse for our partner with the preexisting condition.

Why does this matter for this election? The two candidates have very different views of the problem. Barack Obama's plan would build on the current system, requiring all employers except small business to provide insurance directly or else contribute to the cost. Instead of the current individual market, he'd create an insurance exchange where small businesses and those lacking coverage could buy health insurance (either private or public) with tax credits. His plan also expands coverage under Medicaid and the State Children's Health Insurance Program, S-CHIP. In our case, we'd still have our little group, or could participate through an insurance exchange; we wouldn't have to cast our medically-challenged partner adrift.

We'd head in a very different direction under John McCain's plan. Apart from the tax hike on benefits, and the $1.5 trillion cut to Medicare, his plan would break apart employer-based coverage and force people into the individual market. The theory is that comparison shopping, along with increased price sensitivity and opening ourselves to potential costs of medical risks, will make us better consumers and ultimately save money. But that kind of individualized, economically-driven market means that we'd toss our friend and partner over the side.

So in the end, it's both a policy and a moral choice. Obama's plan will make health care more affordable, accessible, and efficient. A new study says his plan will cover 34 million uninsured, the competing plan only 2 million. But more than that, Obama's plan is designed for an America where we work together and assist each other, where helping a friend doesn't become a dumb economic decision.

So vote for change -- and for a better America.

John Dingell Is a Dinosaur. John Dingell Was Right.

Rep. John Dingell (D-MI), the longest-serving member of the House, may be a dinosaur but he sure sounds prophetic in his 1999 floor speech opposing the 1999 Gramm-Leach-Bliley bank deregulation bill:

"I just want to remind my colleagues what happened the last time the committee on banking brought a bill on the floor which deregulated the savings and loans. It wound up imposing upon the taxpayers of this nation about a $500 billion liability," Dingell said. "Having said that, what we are creating now is a group of institutions which are too big too fail. Not only are they going to be big banks, but they are going to be big everything."

Dingell warned in that 1999 speech that one day the bill will come due.

"Taxpayers are going to be called upon to cure the failures we are creating tonight and it is going to cost a lot of money, and it is coming. Just be prepared for those events," he said.

Someone should go back and see if any Members of Congress voted for Gramm-Leach-Bliley in 1999 but against the bailout in 2008. That's the indefensible position based purely on ideology and not responsibility. ("This is guaranteed to work. And if it doesn't, I won't lift a finger to help.")

He Said, She Said

This week's column was paired with one by Linda Turley-Hansen, who did the "vote for McCain" side to my vote for Obama column. My newspaper version is here while hers is here.

I originally went small and personal, discussing health care as my issue to make the larger point, but because Linda covered the a wide range of issues, I had to as well. The bad news is that I had to write two columns in 24 hours last week. The good news is that next week's column is already written, so I can fast in peace on Thursday. Or at least only worry about my sins, not my deadline.

WHY YOU SHOULD VOTE FOR OBAMA
Obama offers distinct change for nation
East Valley Tribune, Oct. 5, 2008

There are elections where candidates and voters focus on personalities, wardrobe choices, or so-called “gaffes.” Then there are elections where voters get a clear choice on important issues. This is one of those “choice” elections.

It’s still a campaign, with plenty of silliness, talking in code, and serious issues reduced to four-second sound bites. But despite the noise, we can choose between two very different directions.

Take the economy. Barack Obama has ambitious plans for greater economic security for the poor and middle class. He wants to cut taxes for 80 percent of Americans, only raising them on those making more than $250,000. He wants to spend more on education, energy independence, and job creation. He will not renew the Bush tax cuts, which mostly benefitted those at the top.

If you think the economy is fundamentally sound, and that we should continue the Bush tax cuts and deregulation of financial markets, then you can choose that course. But if you want a different direction, you should vote for Obama.

There’s foreign policy. Obama believes the big mistake of the past eight years was starting the Iraq war; he rejects the philosophy which justified that war, the Bush doctrine of preemption. The opposing view thinks the big mistake of the past four years was opposing the surge, supports preemption, and attacks Obama for willingness to talk with potential adversaries.

If you think the Iraq war was a good idea, that it makes sense for the U.S. to attack other countries preemptively even if the threat isn’t imminent, and that any form of diplomacy is an admission of weakness, then you can continue those policies. But if you want change, you should vote for Obama.

In health care, Obama wants to expand coverage of the uninsured, building on the existing employer-based system while allowing individuals and small businesses help obtaining insurance with tax credits without preexisting condition exclusions. The alternative wants to eliminate the employer-based system by making the fringe benefit taxable, moving everyone into the individual market and making people more at risk for their health care.

If you think that people don’t pay enough for their health care, that you’ll get better coverage as an individual than in a group, and that the uninsured and underinsured really aren’t a problem, then you can stay that course. But if you want to change direction, you should vote for Obama.

For energy, Obama wants to spend $150 billion over 10 years developing clean energy, “green collar” jobs, and conservation. Others say if we just drill in more places, that’s enough. If you think we don’t need fundamental change to our energy policies, that we can solve our problems by substituting U.S. oil for imports, then you can vote to continue our current policies. But if you recognize that we must change our use and mix of energy substantially, which requires public investment and leadership, then you should vote for Obama.

Obama wants to increase funding for Head Start and early childhood education instead of freezing it, or even subjecting those programs to an across-the-board cut in discretionary spending. Obama has called for changes in the bankruptcy code and greater market oversight, while current policy frets that we haven’t deregulated enough. Obama supports a woman’s right to choose; current policy doesn’t. If you want to keep going in the same direction as the past eight years, you have that choice. If you want change, you should vote for Obama.

Then there’s style, which matters to some. Obama can be professorial, even downright boring. He listens to people, thinks before he speaks, and doesn’t make rash moves. But he’s not pretending that by sheer force of personality, he can take discredited policies and obsolete ideology and somehow make them work after eight years of miserable failure. He is proposing real, substantive change in policy -- not just not personality.

Are you better off today than you were eight years ago? Maybe you are, and if so, vote for the policies that have helped you. If you’re not, you should vote for change, not more of the same.

To me, it’s a very clear choice. Vote for Obama.