Monday, September 29, 2008


I read through the bill and intended to write a full analysis. Fortunately, ABC News has captured some of the same concerns I had: Does the Bailout Ignore Homeowners, Execs?

Although Pelosi, Reed and other members of Congress announced with much fanfare that the legislation would include "relief" for homeowners and cap corporate salaries, the proposed legislation only moderately delivers those promises. For example, the limit on executive salary only applies if the government purchases $300 million or more in assets from the company. Although the bill would prohibit "golden parachutes," it would exempt existing employment agreements from this provision. The proposed legislation would only impose additional tax burdens on companies that pay extremely high salaries; it would not explicitly limit those salaries.

As for homeowners struggling to pay their mortgages, the proposed legislation would only help those persons whose mortgages the government purchases. Also, the legislation only requires the Secretary of the Treasury to write a plan to "mitigate" foreclosures and to help funnel distressed borrowers through existing assistance programs. The bill does not provide any money at all for foreclosure prevention.

I heard Dennis Kucinich rail against the bill today on C-Span. It was a great speech. Also, true conservatives in the House (i.e., those who hate "big government") seem bothered as well. But the Senate seems bent on getting the bill passed. After all, it probably will help the economy somewhat, but most importantly, two members of the Senate are running for president. Their colleagues do not want voters to view their respective parties as responsible for blocking a bill designed to save banks (or was it "the" economy?). Tune in for more updates.

Sunday, September 28, 2008

Breaking News: JP Morgan Chase and Bank of America to Buy the United States!

The Associated Press has just released a stunning news item. JP Morgan Chase and Bank of America, the nation’s last two remaining banks, have tentatively entered into an agreement to buy the United States of America. The transaction includes all federally and state-owned real and personal property, natural resources, and prisons. The contract, however, does not permit the purchase of citizens of the United States, because lawyers feared such a provision would violate the constitutional prohibition of slavery. Both companies, however, expect to hire many U.S. workers to run the government and would likely pay them "slave wages." When asked what this meant, company officials said that "employees would earn the minimum wage." The constitution does not explicitly prevent employers from paying "slave wages."

Another provision would release all incumbent political officials from their respective offices. A source close to the transaction said angrily that "this bunch of yahoos has absolutely no damn business presiding over such a huge and complex economy as the U.S.A." He said that their "mismanagement and shenanigans have landed the country on the ‘clearance’ table at Wal-Mart. Buying it was a no-brainer. It’s a great financial opportunity for us."

One heavily negotiated provision would allow the candidate who wins the upcoming presidential election to serve as president, although the companies expect to refashion the presidency into a symbolic leadership position. A spokesperson for one of the banks who wished to remain anonymous said that the president would "become more like the Queen of England – adored and important – but not having a bit of power over what we say or do."

Both presidential candidates have responded to the shocking news. The Obama campaign said that "Now, as a result of this unprecedented transaction, no one can doubt or deny that if Barack Obama is elected as President of the United States, the presidency and the nation will have changed dramatically. In fact, things will change beyond our wildest expectations."

The McCain team said that "As a former POW and decorated veteran, John McCain is well prepared to guide the country through this difficult period of readjustment." The McCain campaign also said that the "proposed reduction of the president’s role should finally put to rest those nasty fears spread by our opponent concerning Sarah Palin being a ‘heartbeat away from the Oval Office.’"

President Bush has also released a statement responding to the transaction, which his administration reportedly helped negotiate. President Bush says that "I’m outta here anyway, so it don’t mean a hill of beans to me." Bush’s statement also attempts to calm likely anxiety among voters over the idea of two banks owning the country. Bush says that "People need to just relax and get used to it. At this point, these guys own about everything of value in the country anyway, so this is the next logical step." Members of Congress are recuperating from actually having to work last week to complete the bailout negotiations. Consequently, no member of Congress has responded to requests for comments.

Dissenting Justice will have more analysis of the situation as it develops. Although this is a satire, you never know what might happen!

Saturday, September 27, 2008

Who Won the Debate? Depends Upon Which Candidate You Support

The debate between John McCain and Barack Obama was pretty tepid, but it was good (and important) enough to warrant analysis. Partisans will definitely think "their guy" won, and each candidate provided the other with sufficient ammunition to claim victory.

What McCain Didn't Do for Obama
The Democrats wanted McCain to foam at the mouth like a rabid dog. He didn't. Instead, he came across as a senior statesman, offering tons of personal stories about handling problems in the past and even regretting some decisions. Several media outlets are making hay about him not making eye contact with Obama. I guess I was too bored to notice that.

What Obama Didn't Do for McCain
McCain needed Obama to look unsophisticated and raw. He didn't. He looked convincing on the stage.

Surprising Moments
Obama had the audacity to renew his argument that going to war was a bad decision. I agree that it was a bad decision, but choosing Joe Biden, who voted for the war, as a running mate diminishes the force of Obama's antiwar critique.

I was surprised that McCain raised the "experience" argument, which had defined much of his campaign against Obama until Sarah Palin's selection. Palin has a very skimpy resume, and most people believed that McCain had discarded the experience argument. Well, it's back, and it is now coupled with "you just don't get it" or "you are naive." McCain has begun to usurp Obama's slogans and use them against him ("change" and "you just don't get it").

Missed Opportunities
McCain missed the opportunity to expose Obama's inconsistency with respect to the war (saying it was a huge error, but picking Biden as a running mate), and Obama missed the opportunity to neutralize McCain's experience argument by either mentioning Palin or somehow showing that McCain's experience is a bad thing. He did this with Clinton in the primaries, but he was unable to do that during last night's debate.

Obama said that Henry Kissinger does not disagree with the President of the United States speaking with Iranian President Mahmoud Ahmadinejad "without conditions." This actually came up during Sarah Palin's recent interview with Katie Couric. Couric did a "gotcha" on Palin, asking whether she thought Kissinger was naive (a charge McCain/Palin made of Obama) for wanting talks with Iran without conditions. Palin said that Kissinger, who advises McCain and Palin on foreign policy, does not believe this. Couric said that CBS had confirmed that he does. Gotcha!

Obama used the same argument during the debate, and McCain rebuffed him, saying that his "friend" does not support that position. Following the debate, Kissinger released a statement agreeing with McCain. Ouch. Well, not a huge ouch, but ouch. Turns out, he would support other governmental officials meeting with lower level Iranian officials, but not with either country's president, absent conditions. So this is the "Bush Doctrine" redux. Political scientists do not even agree what such a doctrine looks like (or even if it exists). Another failed gotcha.

McCain still cannot pronounce Ahmadinejad on the first try. Bless his heart.

Overall: Slight Nod to McCain
During the primaries, I watched the Democrats debate incessantly; so there was probably nothing Obama could have done that I had not already seen. I did not watch the Republicans during the primaries; so I was eager to see how McCain would perform. Although Democrats have portrayed McCain as a curmudgeon, he did not come across that way. This scores him major points, I believe, and makes any more argumentation on that issue look petty. Obama, however, did not look inept and raw, but still remains vulnerable to that charge, due to his relative lack of experience compared to McCain. Of course, if McCain emphasizes experience, then Palin becomes even more vulnerable than she already is.

I do believe that the public will probably declare McCain the winner, if they follow standards from previous presidential debates. As a good progressive, I was thoroughly convinced that Al Gore and John Kerry won their debates against Bush. Apparently, they did not sell themselves well to the public. Obama is his own candidate, but in many ways, he excites the same demographic as Gore and Kerry, but even more intensely. Highly-educated, coastal, liberal, professional types (like myself) will think he slaughtered McCain. To the rest of the country, he might have appeared a bit like a "know-it-all" (distinct from "uppity") and pious. Here's a message for highly-educated, coastal, liberal, professional types: you have to exit your own skin to try to appreciate this analysis.

These same portrayals tanked Gore and Kerry. In losing, they both were described as too bookish and self-righteous. Yet elite Democrats still seem incorrectly to believe that intellectual depth and nuance and the morality of liberal social democracy are winning arguments in presidential elections. If this were the case, then Gore and Kerry would have won, and Obama would be leading McCain by double-digits, especially given the tragedy of the war and the horrific economic conditions. The fact that the race is close should cause Democrats to rethink their presidential election strategies. Race has something to do with the closeness of the election, but it does not explain it altogether. The last two contests were close, as was Clinton's victory in 1992.

Although last night's debate was lackluster, next week's vice presidential debate could offer a lot of pizazz. The combination of Joe "Loose Cannon" Biden and Sarah "the Moose" Palin is too rich to ignore. Tune in next week for more analysis.

Thursday, September 25, 2008


According to ABCNews the so-called "deal" in principle on the bail-out is unraveling. Both sides are blaming each other. Paulson apparently told Democrats not to "blow this up," while Representative Frank and Senator Dodd, both Democrats, say that the White House meeting was simply a charade to boost McCain's visibility. I imagine that both sides are right in blaming the other. The Republicans are likely blocking a deal in order to allow McCain to grandstand, and the Democrats are hoping that a quick agreement will emerge so that McCain will look irrelevant.
I have already argued that both sides are guilty in this matter, and I stand by that proposition. Frank and Dodd are captured by the industry and they, along with Obama and Clinton are among the biggest recipients of Wall Street campaign donations this year, while the Republicans have for a long time enjoyed a status as favorites to big business. Their tax cuts have augmented a budget deficit, which, though not the cause this current financial unrest, makes it difficult for the government to contribute resources to solving this economic crisis and tackling other social problems. Stay tuned, as more drama will likely unfold.

Bringing Back Welfare As We Knew It: My Indignant Take on the Wall Street Bail-Out

Bill Clinton’s 1996 "welfare reform" made him (and his wife) the enemy of the left and a hero to moderates and conservatives who apparently believed that single black mothers on welfare were the greatest threat to American taxpayers. Of course, AFDC payments constituted only 1% of the federal budget, and a majority of welfare beneficiaries were (and still are) white. Nevertheless, the "welfare queen" became a rallying cry for opponents to welfare. Welfare recipients, according to the royal rhetoric, are lazy, make bad choices, have ample opportunity for economic advancement, and are incentivized to idleness and pathology by governmental subsidies. The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 required recipients to work, curtailed benefits to unmarried individuals (under the false assumption that marriage ends poverty), and placed a lifetime limit on benefits. By contrast, the unconditional bail-out for Wall Street, as it currently stands, marks a return to welfare as we knew it.

Earlier this year, I wrote a column questioning why the Bear Stearns bail-out failed to trigger a discourse concerning the pathology of Wall Street’s "welfare kings." See ( Although some liberal commentators have attempted to blame the present financial unrest on "deregulation," most financial experts believe that reckless investment decisions created this havoc. Historically low interest rates in the early in 2000s made it very easy for banks to obtain money to lend (at a profit). The wide availability of credit increased demand for housing which caused rapid price appreciation. Banks, wanting to fatten their coffers, engaged in reckless lending, using "creative" products such as adjustable rate mortgages and no-income verification loans to finance home purchases for individuals with poor credit ratings or "A-credit," but insufficient income. Homeowners used their homes as ATM cards, dipping into their equity to purchase cars and other consumables. Investment banks purchased mortgages, bundled them together as securities, and sold them as assets to investors wanting a fixed return.

Ultimately, market fundamentals could not sustain this excess, and the Federal Reserve began raising interest rates to bring the market back to reality. Adjustable rate loans caused payment shock for borrowers, and foreclosures soared. Suddenly, mortgage-backed securities became risky and unstable assets, and financial institutions that held these securities or traditional mortgages began to suffer huge losses. Lenders refused to extend credit to holders of these assets or to purchase them due to their risk. Essentially credit dried up. Foreign sources of money also ran from the United States, exacerbating the unavailability of credit. Bear Stearns, Lehman Brothers, and other venerable Wall Street institutions hit the dust. And the story continues to unfold.

In response to recent events, the Bush administration has requested $700 billion to allow the Secretary of Treasury to purchase mortgage-backed securities from troubled financial institutions. The companies would receive "market value" for the securities (whatever that is) and would presumably have a better credit rating without the risky assets. In addition to infusing capital into troubled firms, this plan, if successful, would help stabilize financial markets, attract foreign and domestic sources of credit, and prevent steep economic decline. Because a private-sector solution to this madness seems out of reach, governmental intervention is necessary.

Still, we need to label this intervention honestly: it is a handout to people who engaged in highly irresponsible behavior. Not only was their behavior reckless, but they, as financial professionals, had greater knowledge of the risks and consequences of their behavior than the average homeowner, who lacks sophistication concerning financial markets and lending parameters. Although many commentators have bashed "sub-prime" borrowers, which I view as the new "welfare queens" ( they have not similarly critiqued the companies which had the capital and power to create the current situation – and the financial expertise to avoid it!

The fact that this problem has intensified during a presidential election makes things even more dramatic. Democrats and Republicans are rightfully calling for more conditions placed on the receipt of federal money (and this seems inevitable). Hillary Clinton has even proposed that the government purchase individual mortgages and reiussue them to distressed homeowners under more favorable terms; a similar course of action took place during the Great Depression. But neither side can claim "clean hands" on this issue -- although Democrats have tried to do so. Liberals, in particular, have blamed the current mess on "deregulation," citing to several pieces of legislation, but most often, the Gramm-Leach-Bliley Act of 1999. That legislation allowed commercial banks, investment banks, and insurance companies to consolidate. This statute, however, did not create financial chaos; risky investments did. Countrywide and Washington Mutual are strictly commercial banks. The former has already folded into Bank of America, while the latter is on life support. Bear Sterns and Lehman Brothers were strictly investment banks, and they have both died. AIG is exclusively an insurer, but it too needed a federal rescue. On the other hand, JP Morgan Chase is a consolidated investment and commercial bank, but it is among the strongest of the remaining financial institutions in the country. Furthermore, Bill Clinton signed the legislation into law, and Robert Rubin (former head of Goldman Sachs, now Chairman of Citicorp), his Secretary of Treasury, lobbied for it. Democrats also voted for the measure in large numbers.

Recently, Obama called Rubin for "advice" on the economic crisis, and he initially chose James Johnson, a former managing director of Lehman Brothers and Vice President at Fannie Mae, to head his Vice President vetting team. Johnson resigned after the Republicans politicized his connection to Fannie Mae and his receipt of millions of dollars in "loans" from the troubled company. In the past, Democratic Senators Charles Schumer and Christopher Dodd have both rejected stricter regulation of financial institutions, as has Representative Barney Frank. All of these men sit on congressional banking and finance committees. And Fannie Mae employees gave Dodd, Obama, and Clinton most of their campaign contributions this year. No one is innocent.

McCain has "suspended" his campaign, but, ironically, this move is just a campaign strategy designed to delay having a presidential debate during this chaos. Polls have begun to shift towards Obama during the turmoil, proving the old maxim that "it’s the economy stupid." Statistical data indicate that voters tend to blame the incumbent’s party for economic distress. Obama says the show must go on and that presidents have to "multi-task." That’s a great response to McCain’s gimmick. But at the end of the day, both candidates, as leaders of their respective parties, need to endorse the solution. Because it is an election year, expect to hear emotional (and nauseating) appeals to bipartisanship – so that neither side will become vulnerable to charges of "playing politics" with the solution.

Ultimately, both candidates will ceremoniously help craft and endorse the legislation, which will likely have some conditions placed upon the Secretary of the Treasury and the companies that receive governmental assistance. But I do not expect "the people" to benefit directly from the legislation, in terms of mortgage-payment assistance or reissuance with more favorable terms. Nor do I expect that the "conditions" in the law will involve things like job training for financial professionals, a lifetime limit on the receipt of subsidies, or other similar conditions that were all placed in welfare reform legislation. Welfare as we knew has made a triumphant return.

Thursday, September 11, 2008

The Democrats' Palin Strategy: A Bridge to Nowhere!

On August 31, I argued that, in order to counter John McCain, the Democrats needed to respond seriously to Sara Palin and engage her public policy record and political ideology. At that time, Democrats were salivating and laughing over McCain’s supposedly tragic decision to select Palin as his running mate. Liberals ridiculed her as Dan Quayle in a dress, and jokes and rumors about Palin and her family spread rapidly.

Well, to date the Democrats have done a poor job handling Palin (and McCain). Rather than accepting Palin as a serious contender and confronting her on policy and ideology, they have instead treated her, at best, as political prey. But their attacks have backfired. Each new supposedly "embarrassing" media and liberal-blogger tidbit concerning Palin has helped energize Republicans and iconize Palin. This is a losing strategy, and many polls show that white women have dramatically shifted towards McCain, giving him a tremendous surge in national and state polls.

Instead of scrutinizing McCain’s policy agenda, liberals have conducted a fishing expedition, canvassing Alaska for negative information on Palin. But undecided voters need to hear a comprehensive critique of McCain’s social and economic agenda and the alternatives the Democrats offer. Liberals, however, have wasted their resources uncovering alleged book burnings, igniting baby-mama dramas, bashing the "Bridge to Nowhere," and (mis)informing the public that Palin has slashed special education budgets, that she was a member of an Alaska secessionist movement, and (most alarmingly) that she once endorsed the neo-conservative Patrick Buchanan! Were Palin a Democrat, this amount of digging would make Ken Starr proud. Perhaps the Democrats have forgotten that it took the Republicans six years of slinging to discover something that seriously damaged Bill Clinton, but he nevertheless remained standing. The 2008 presidential election takes place in less than eight weeks.

In the rush to discredit Palin, Democrats and liberals have come across as acutely unsophisticated. The scandalous information about Palin that they have disseminated undoubtedly enhances foot traffic and debates on liberal blogs, but it does not tell skeptical voters why they should prefer Obama over McCain. In fact, the frenzied attention given to Palin diverts critical scrutiny away from McCain and his policies. Furthermore, it appears that much of the liberal narrative against Palin is false or misleading. Yesterday, the nonpartisan and respected released a comprehensive rebuttal of many of the most infamous allegations concerning Palin ( This embarrassing development will only reinforce McCain’s portrayal of the media as biased against Republicans.

Unfortunately, smearing Palin seems like a permanent campaign strategy. The Wall Street Journal reports that Democrats have already dispatched 30 lawyers and investigators to Alaska in search of damming items in Palin’s past ( Because 80% of Alaskans view Palin favorably, one could safely assume that the Democrats’ quest for campaign-ending secrets will probably end up as cold as an Alaska winter.

So what should Democrats do? Instead of engaging in trivial pursuits, they should adhere to their script that highlights the vital differences between Obama and McCain. They powerfully detailed these differences during the Denver convention. Since Palin’s nomination, they have been wandering aimlessly.

Palin is running for vice president, and that’s how Democrats should treat her. They have powerful arguments against McCain. His rigid anti-choice perspective deviates from mainstream public opinion. His tax cuts for the wealthy will only increase the gap between rich and poor and drain the government of revenue that could go towards balancing the Republicans’ record budget deficit and that could eventually help finance important social services that a majority of the electorate supports. McCain’s closeness to the Bush administration and its policies should trouble all rational voters. And while there is a danger in billing McCain as Bush III (McCain could write his own narrative – as he has been doing), this strategy is far more effective than unleashing bloodhounds on Palin. Furthermore, McCain’s sharp turn to the right allows Democrats to portray him as a "waffler," which always seems to work with voters. Their failure to exploit this vulnerability is inexplicable. Palin has mobilized the party’s conservative base, who feared McCain due to his prior moderate stances on some issues. But Palin is not running for president; McCain is (seems elementary, but the Democrats have misunderstood this basic point).

While Democrats try to destroy Palin’s star power, McCain the "maverick" has managed to co-opt Obama’s "change" message. A snappy rebuttal might sound like this: "The only things McCain has changed during his career are his policy positions and promises to voters – just to win an election" (not the most elegant stump language, but I’m a law professor, not a politician). The bickering over Palin keeps the Democrats from defining McCain, but it allows McCain to define the Democrats as petty and sexist.

Speaking of sexism, Republicans have cynically manipulated gender equality in order to woo women voters. During Palin’s first media appearance as a vice presidential candidate, she referenced Hillary Clinton’s historic campaign. Republicans have also (rightfully) criticized commentators who question whether Palin could serve as vice president and raise five children.

The latest gender drama – over Obama’s cheesy observation that even with "lipstick," a pig is still a pig – ensures that this campaign will remain surreal and insane. The commonly used expression was clearly innocuous, but in a new commercial called "Lipstick," McCain, demonstrating a tremendous amount of chutzpah, accuses Obama of sexism. Obama and other Democrats have just dismissed the entire matter, denying any sexist intent. But the Democrats seem more reluctant to talk about sexism than the Republicans. The antiracist and antisexist party – whose convention oozed with "diversity" – should market its relative strength on civil rights issues. In response to McCain’s Lipstick ad, Obama could have demonstrated how McCain’s conservative policies would harm women. McCain spoke out against the Ledbetter Act (he was absent for the vote), which would have reversed a conservative Supreme Court ruling that narrowly construed the statute of limitations doctrine in pay equity cases. Now, pay-equity plaintiffs have only 180 days from the original date of discrimination (i.e., when the illegal salary decision was initially made) to bring their claims. In most instances, however, a plaintiff will not discover that she has in fact suffered discrimination until it is too late to obtain legal redress. McCain also promises to appoint conservative jurists who would undoubtedly continue to rule against victims of sex discrimination.

Criticism of McCain’s anti-choice and pro-war stances, his refusal to develop a meaningful health care reform agenda, and many other of his policies would likely cause some women to rethink their recent shift towards the Republican nominee. By getting enmeshed in Palinmania, the Democrats are squandering the opportunity to demonstrate why undecided voters should run from, not towards, McCain.
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