Americans Reject Using A Government Shutdown To Legislate

October 1, 2013Danny Vinik 5 Comments

Yesterday evening, President Obama gave a short speech where he urged Congress to pass a continuing resolution to prevent a government shutdown and criticized Republican leaders for attempting to extract concessions from him without giving anything up themselves.

“[O]ne faction of one party in one house of Congress in one branch of government doesn’t get to shut down the entire government just to refight the results of an election,” Obama said. “Keeping the people’s government open is not a concession to me. Keeping vital services running and hundreds of thousands of Americans on the job is not something you give to the other side. It’s our basic responsibility.”

In fact, Democrats have already agreed to a deal with Republicans where they are giving up something and the GOP isn’t. It’s the clean CR that keeps sequestration. Democrats are giving billions in budget cuts to Republicans, who are giving up nothing. Yet, a small, but powerful group of conservative House Republicans won’t even consider that deal and House Speaker John Boehner (R-OH) won’t bring up the bill out of fear of them. If he did take the political risk and bring the clean CR to the floor, it would pass with a large majority, the Senate would pass it and the government shutdown would end, all with a bill in which Democrats make concessions and Republicans don’t.

Now, imagine if Republicans were looking to cut spending beyond sequestration ($986 billion in discretionary spending) to the level laid out in the 2014 Ryan Budget ($967 billion). Under this scenario, the Republicans starting position would still be absurd as the Senate Democrats original 2014 budget set spending at $1,058 billion. The sequester has already trimmed that to a $986 billion. Reducing it all the way to the levels of the Ryan Budget would be an outrageous demand. But at least that demand would have to do with levels of federal spending. There would be a very clear, logical connection between the government funding and the Republican position. But Republicans aren’t asking for anything related to federal spending right now. It’s all about finding ways to undermine Obamacare. That’s what sets this government shutdown apart from previous ones.

This is the 18th government shutdown in U.S. history. Here’s how the causes of them breakdown (thanks to Wonkblog’s Dylan Matthews for the great roundup):

9 were caused by disagreements over spending levels on certain programs, projects, departments or the entire government (1976, 1978, 1981, 1982 #2, 1983, 1987, 1990, 1995, 1996)
4 were caused by disagreements over whether Medicaid dollars could go towards abortion (1977 #1, 1977 #2, 1977 #3, 1979)
2 were caused by disagreements over Civil Rights legislation and a couple of projects (1984 #1, 1984 #2)
1 was caused by disagreements over labor contracts and welfare expansion (1986)
1 was caused by negligence (1982 #1)

In nearly every shutdown, the two parties disagreed on issues related to levels of funding or how federal spending would be used. These were differences of opinion directly related to budget negotiations. In almost every situation, there was an actual negotiation and each side compromised to find a solution. It required a government shutdown, but the structure for negotiations always existed as the initial starting positions for each party were related to federal spending.

There were a couple of occasions where that was not the case, such as when Democrats attempted to enact a Civil Rights law in 1984 and ensure that the FCC enforced the “Fairness Doctrine” in 1987. However, the party looking to use a government shutdown to legislate always lost. Democrats eventually relented on the Civil Rights legislation and the “Fairness Doctrine.” This doesn’t mean that it’s impossible to enact legislation unrelated to federal spending during a government shutdown, but it has never succeeded before. The main reason for that is that negotiations over funding the government are supposed to be just that. They aren’t supposed to be a place where one party can extort the other.

Yet, this is what House Republicans are trying to do. They are trying to force the Administration to delay or defund Obamacare in order to fund the government at a level that everyone agrees on. When a final agreement is reached (or Republicans relent), the CR will almost certainly be set at $986 billion. Republicans aren’t concerned about spending levels. They are using the government shutdown to legislate. This is exactly what President Obama said in his remarks earlier today as well.

“No, this shutdown is not about deficits,” he said. “It’s not about budgets. This shutdown is about rolling back our efforts to provide health insurance to folks who don’t have it. It’s all about rolling back the Affordable Care Act.”

Fortunately, Americans seem to be well aware of what Republicans are trying to do and are wholeheartedly rejecting it. A Quinnipiac Poll today found that 72% of respondents disapprove of Congress using a government shutdown to block Obamacare. Just 22% approve of the tactic. This is in stark contrast to the overall approval rating of the law, which sits at -2% (45% in favor, 47% opposed). That demonstrates that Americans disapprove of the Republican’s tactic of using a government shutdown to legislate.

If the numbers were reversed, Democrats would face political pressure to adjust the law. It would alter the dynamics of government spending negotiations forever – allowing the party not being blamed for the shutdown to enact legislation via extortion. That’s not a proper way for our government to function. By overwhelmingly rejecting the Republican’s strategy, Americans are sending a message loud and clear: using a government shutdown to legislate is not acceptable. Hopefully, Republicans get the message soon enough.

Americans Still Don’t Understand the Debt Ceiling

October 1, 2013Danny Vinik 2 Comments

I don’t mean understand it in terms of what it actually is (though I don’t think they understand that either). They don’t understand the consequences of it. Breaching the debt ceiling would be catastrophic, causing irreversible long-term effects on our debt and economy. That’s not hyperbole. The market doesn’t believe that we will breach the debt ceiling, because it would be too idiotic for John Boehner to allow that to happen. The current government shutdown is a drag on our economy and harms many different aspects of people’s daily lives. But a default is many orders of magnitude worse. Yet, a new Quinnipiac Poll today suggests that Americans are a bit confused about which is more dangerous: breaching the debt ceiling or a government shutdown.

Raising the debt ceiling is non-negotiable.

The poll finds that by 72% to 22% margin, Americans do not want Congress to shut down the federal government over Obamacare. That’s good. However, a smaller margin (64% to 27%) do not want Congress to default over Obamacare. It’s good that in both cases Americans understand that it’s not acceptable to use a fiscal crisis as leverage to extort the opposite party. But these polls demonstrate that more Americans are OK with that extortion when the hostage is the debt ceiling than when it is government funding,

That’s backwards and needs to change. Part of the reason for this may be because this poll was conducted over the weekend, right before a government shutdown, while a possible default is still a few weeks away. Nevertheless, the media must do a better job explaining the consequences of a default to the American people. There should be no pretense that there will be negotiations over the debt ceiling. That’s not how this works. President Obama screwed up in 2011 by negotiating over it, but that was an outlier. It did not set a precedent.

Speaker Boehner will raise the debt ceiling, because if he doesn’t, it will go down as one of the single worst actions a legislator has done in the history of the United States. Once again, that’s not hyperbole. We need to stop treating this as a back-and-forth game, trying to guess what the speaker will do, and start calling it what it is: a foregone conclusion. Boehner will raise the debt ceiling, because it would be apocalyptic not to. The American people need to know that as well.

Why Jamie Dimon Should Be Indicted

September 30, 2013Danny Vinik 1 Comment

Salon’s Alex Pareene went on CNBC on Friday to debate whether JPMorgan CEO Jamie Dimon should keep his job after the megabank has found itself facing numerous investigations for alleged crimes it committed over the past couple of years. Wonkblog’s Neil Irwin summed up the entire situation well:

This is Mars vs. Venus stuff, in the sense that Pareene is coming from a different planet than Bartiromo and others who are creatures of the Wall Street world. The latter group sees Dimon as the most successful of the masters of the universe, as evidenced by the fact that he steered his bank around the calamities of 2008 and has kept it roaring ahead since. In this telling, some of the unpleasantness the bank has faced, like the $6 billion “London Whale” trading loss and potential $11 billion settlement being negotiated with the Justice Department as a fine for its involvement in shady deals for mortgage securities before the crisis, are just a cost of doing business.

On the planet inhabited Pareene (and some of his supporters among the commentariat, like Felix Salmon and Kevin Roose), the fact that JPMorgan has made gobs of money under Dimon, even after accounting for those losses, is almost irrelevant. JPMorgan had been one of the (allegedly) culpable parties in all sorts of chicanery (Tim Fernholz lists the investigations here), and the CEO must take responsibility for such broad problems.

The basic divide here isn’t about the merits of these individual cases, or any personal culpability that Dimon might have in bad behavior by the bank (some of which even took place in Bear Stearns and Washington Mutual, companies that JPMorgan acquired as they were on the brink of collapse during the crisis).

The question is what obligation a mega-bank like JPMorgan, and its CEO, have to society as a whole as opposed to just the shareholders who own it.

Irwin continues on to note the systemic value of JPMorgan and the benefits such megabanks receive due to their size. That means these banks have an obligation to the whole economy, not just to maximizing shareholder value that CNBC analysts singularly focus on. Irwin concludes:

In that sense, Jamie Dimon’s role at the helm of JPMorgan is not just one of satisfying the company’s shareholders, but one with broad responsibility to steward one of the important institutions that supports economic growth. The CNBC video is evidence of how little, five years after the crisis, that sense of broad responsibility has permeated the world of Wall Street.

This is the perfect summation of the entire exchange. The problem is that Wall Street is never going to learn and understand this. They still don’t understand that banks have a societal duty to operate prudently and legally. They haven’t learned and they aren’t going to learn.

The question, then, is how to align incentives so that operating prudently and legally is in the best interest of Jamie Dimon and JPMorgan. Pareene suggests breaking up the banks so that their failure wouldn’t cause a financial crisis and require a government bailout. But in the absence of Congressional support for such a policy, there is another way to align these incentives: make CEOs and other executives have skin in the game.

This isn’t easy to do and federal agencies don’t have enough resources as it is, but there has to at least be an effort to hold individuals responsible for their bank’s actions. It’s too easy for bank executives to commit crimes, attempt to cover them up and then avoid a trial. The bank may face an investigation and have to pay a huge fine, but bank executives are never at risk of going to jail. That’s inexcusable.

If those executives suddenly faced criminal charges, their conduct would change quickly. The industry would change quickly. Executives would still try to maximize shareholder value, but they would also be concerned that the bank was doing so legally. If not, they could soon find themselves locked away. That’s a good incentive to make sure your bank isn’t breaking the law.

Best of all, this doesn’t require prosecuting every small thing that banks do wrong. It just requires prosecuting enough executives so that all of them are aware that if their bank commits a major crime, they will likely face charges.

You know where would be a good place to start? Prosecuting the leader of the bank that is about to pay the largest financial settlement in history.

That man? Jamie Dimon.