Tuesday, August 2, 2011
Winners, Losers, and What’s Next?
My early thoughts on the “debt/budget big deal” are a little ho-hum and a lot of trepidation.
I believe the Tea Party in Congress and their ilk were the major winners in this dispute and that bodes ill for the United States in coming months/years.
Most of this exercise—with the real fight down the road—was a colossal waste of time and energy, reminding folks, how often the Democrats gave President Bush the necessary debt limit increase to avoid embarrassment and problems.
A strong case can be made for getting rid of this requirement.
At least we didn't default on our financial obligations…this time. But, given the TP’s leverage, you can’t guarantee that Party members won’t extort some other chilling set of demands the next time.
The Teasies came out of top because their objective--to cut the deficit by limiting “excessive federal spending” (defining that is the rub)—is not unreasonable. (It's something I think is necessary after closely watching the federal government for the past 40 years).
However, the Party’s tactics suck and run from the immature to the diabolically dangerous.
In terms of individual political winners, Sen. Mitch McConnell seemed to arrive at the right moment and can claim “victory.” Speaker John Boehner might try but a closer look shows that the TPers turned him upside down and shook violently, which is a shame because he deserved much better. Boehner’s backstabber in waiting, er, House Majority Leader Eric Cantor (R-Va.), will try and take victory laps.
Harry Reid and Nancy Pelosi (who?) were bit players.
President Obama looked weak and non-presidential. Nobody fears him and while he can salvage some credit for being the only “adult” present, that alone may not help him in 2012.
But something—often Obama himself—gets in the way of the President getting acknowledged for responsible achievement.
As a good and very politically sophisticated friend told me, “President Obama is a fixer, not a fighter, and he found himself trying to negotiate with people who only wanted to fight.”
IMO, one way Obama could reclaim his legacy next year, is by not running in 2012.
He then can eschew partisan politics and try to do the “right thing” for the next 12 months, paving the way for Hillary Clinton to seek the Democratic nomination next year and run against Mitt Romney. I’m not betting that way, but I wouldn’t rule it out.
The Tea Party Wins
The Tea Party won because they got most of their priorities handed to them in the deal. They have positioned themselves to “hold their breath and turn blue”—taking their 60 plus House swing votes and leveraging them for more--the next time the GOP or the country needs them.
Re public policy, the Teasies are an ill-educated and uninformed group, if one believes the statements made by their membership. I still don’t think that many of them think that sacraficing the nation’s credit rating meant a hill of beans.
But, they are zealous, single minded, apparently uncaring about the consequences of their quests, in other words formidable.
Senator Tom Coburn (R-Okla) might have come out of this debacle smelling more like a rose than anyone else and deservedly so.
An original member of the informal and bipartisan Senate “Gang of Six,” the very conservative Coburn showed insight and courage in speaking out against some of the GOP’s major scared policy cows, primarily hidden—or not so hidden—in the nation’s tax code.
If he gets named to the new 12 member congressional deficit group (6 D’s, six R’s, even split between the House and Senate)—created in the budget deal statute--Coburn could be major voice in shaping the serious round of deficit reductions and revenue raisers. I am rooting for him.
Politics Not Up to National Needs?
The saddest realization of all has been the generally agreed upon observation that it is our political system which is dysfunctional more so than our economic or financial system.
We do spend too much of the taxpayers’ money on wasteful things, but too many disparate groups—well represented in Congress and also by paid lobbyists—make it tough to wean the nation from Uncle Sam’s teat.
That doesn’t mean it shouldn’t happen.
There are no near term revenues in the proposal which will go to President Obama for his signature, but just the prospect of defense spending cuts generated opposition from some House conservatives.
Who blinks first or will the November recommendations get politically rolled, too?
Many interests in the nation’s capital adopt the sage observation of the late Senator Russell Long (D-La.), who claimed the prevailing opinion when searching for revenues, was, “Don’t tax you, don’t tax me, let’s get the guy behind the tree.”
Totally lost in the budget sturm and drang—and someone whose success deserves acknowledgement--is the last OMB director who produced two consecutive balanced federal budgets. His name is Franklin Delano Raines and, after leading OMB for Bill Clinton from 1996-1998, he returned to Fannie Mae in 1999 to become its Chairman.
That was right before President George W. Bush pitched the nation and its taxpayers into the deficit vortex, running up huge deficits and advocating major tax cuts while trying to fight two expensive wars.
Remembering Raines’ solid efforts are a nice segue into comments about Fannie Mae and Freddie Mac, the former GSEs.
Fannie and Freddie
Thank you to the National Association of Realtors for inviting me to speak a week ago to 150 of its state and local lobbyists in Memphis.
I won’t blame the famous Rendezvous barbecue restaurant for my subsequent stomach distress (those ribs, coleslaw, and beans were real good). Suffice to say, I was six pounds lighter when I returned to DC two days later.
The Realtors have become the single strongest voice in the nation’s capital for homeownership and have tried to bring together significant elements into the same campaign, realizing that opponents—again ill informed but zealous—would wreck the nation’s mortgage fiancé system, if given a chance.
I told the assemblage that I doubted if anything would change structurally for Fannie Mae and Freddie Mac, as the Congress lumbered into next year and the presidential and congressional elections, but 2013 and beyond were up for grabs requiring their diligence.
The large banks, still declaring that they are the “private sector” continue to seek additional federal support, read "subsidies,” to originate mortgages which they won’t hold on their books but continue to sell to Fannie Mae and Freddie Mac (about 75% this year have gone to the two entities which is a major case for not abolishing the companies now in federal conservatorship).
Look around, we have a feckless mortgage finance system, limited investors for loans and securities not backed by F&F (or the Treasury), other national economic problems (see above), economic lassitude, unemployment staying in the 9% plus range, and large international uncertainties including winding down two very costly wars.
No, I see very little happening legislatively to Fannie and Freddie, except their return to some financial equilibrium as their newer books of business produce black ink.
One slightly cheering thing is the number of places recently where writers acknowledge that Fannie and Freddie under wring wasn’t’ the cause of the 2008 meltdown, with most of that coming from unregulated mortgage brokers working for Wall Street and others.
The frequency of this view won’t stop the AEI berserkers and others from peddling their view of history, but it’s a start.