I hate memes… I hate government regs… I hate taxes

 

I hate memes

A well-designed meme, like this one spotted on Facebook, resonates so well with so many people that it either forms the basis of new beliefs or confirms a bias.  Bankers are evil, the story goes.  They caused the financial crisis and screwed all of us. So, this meme will get shared by many. 

I see it in a larger context of people depending on others to protect them from their mistakes.  Sorry if you suffered during the financial crisis. So, did I.  So did many others.  But, when you sign up for a bank account, you sign an agreement to keep your account balance positive or pay an overdraft fee.  Giving you and anyone in your circumstances a break increases costs for the bank.  So, it’s reasonable to ask who should bear those costs.  Should it be the shareholders of the bank?  Before your amygdala prompts an immediate “yes,” consider that, if you own shares in a mutual fund, you and your mutual shareholders probably own stock in banks.

But if not the shareholders, then who?  Well, those costs will be passed on to other customers in some way – perhaps in higher ATM fees or higher interest rates.  No one will know exactly except the bank’s senior officers.  But, trust me, someone will pay.

And, so, here we are. 

People get themselves into bad situations and sometimes make mistakes.  That’s life. But who should take responsibility for those mistakes other than those who made them?

I hate government regs

It’s fair to point out that banks have raised fees in the years since the financial crisis.  Under pressure to reduce risky lending and strengthen their balance sheets, they sought new ways to generate revenue.  Our government has played a huge role in creating this unintended consequence and the crisis itself.  The Clinton administration liberalized the way in which the main providers of mortgage financing – FNMA and GNMA –could raise capital. In turn, those quasi-government institutions expanding their portfolios of mortgage bonds.  The Federal Reserve lowered interest rates during the Bush administration and GWB ran for reelection in 2004 promoting the highest rate of home ownership in our history.  We all know what happened next.  

In the wake of the financial crisis, Congress passed the Dodd-Frank act which directed government regulators to create rules that discourage risky lending and required banks to increase the amount of capital they hold to protect against losses. Seems reasonable, right?  But it wasn’t the big banks at the heart of the crisis of that suffered under this new regime.  It was community banks, those more connected to their customers and community, who were seriously challenged to comply.  The result is that many sold out to larger competitors, creating more big banks.  

The recently announced acquisition of SunTrust Bank by BB&T is the most visible of these events. When concluded, the merged entity will be America’s sixth largest bank.  The merger is driven by the need to drive down costs in order to retain more capital, invest in new technology and comply with Dodd-Frank’s regulations. Ironically, one of Dodd-Frank’s architects, Senator Elizabeth Warren (D-MA), has criticized the merger because it will create another “too big to fail” bank.  But it’s the conditions imposed by the law that are driving the consolidation of the banking industry.  

No one should be surprised by this. Sen. Warren seems to live in a parallel universe where what’s right is wrong and vice versa. 

I hate taxes

In the latest episode of The Blue State Follies, there’s a kerfuffle in Albany over a shortfall in tax revenues.  That’s bad news for New Yorkers as the legislature begins to develop the state budget. Last November’s election turned complete control of the state legislature over to Democrats.  So, what do you suppose their reaction to this bad news might have been?  Wait for it… Yes, that’s right!  Let’s raise taxes.

But I’m getting ahead of myself.  The US Census Bureau has reported that New York’s population loss has exceeded that of any other state. During the campaign season – while running for a reelection that matched his father’s three terms as governor – Andrew Cuomo informed us that New York was losing population not because of high taxes and inhospitable business conditions but rather because of lousy weather.  As I sit here in upstate New York in February, it’s easy to agree with that assessment.  

To his credit, when his party cried out for higher taxes to close the gap in our state’s budget, he responded that he was concerned that people would move out of New York to avoid paying higher taxes. 

Wait!  What?

WHO WILL LEAD?

Silence or Violence... May we have another choice please?

I received some interesting responses to my last post (BigNews! Elizabeth Warren and the Tea Party Agree) including more than a few from a serial harasser on Twitter.  The emotion that supports both the Tea Party and the Elizabeth Warren wing of the Democratic Party is palpable.  The more thoughtful responses pointed out that, despite springing from the same dislike for the influence of money on politics, the solutions these disparate elements seek to deploy are far from similar. 

So, I went on a quest to see what Sen. Warren would do to make the federal government more effective.  Other than her well-known proposal to refinance student loan debt, I couldn’t find much that was specific.  She speaks of the importance of the role of government in supporting solutions to society’s challenging problems; however, she hasn’t really outlined how she would have us do that.

A similar quest to find Tea Party solutions was also frustrated, but for different reasons.  As one reader pointed out, it’s difficult to figure out which Tea Party is the real deal.  It’s a very fragmented movement. 

So, is there common ground?

I would like to see that government stop propping up failed banks and supporting corporate interests through subsidies and tax breaks.  I would guess that Sen. Warren’s supporters would agree, as would the Tea Party (I think).

I would also like to see the federal government stop meddling in the education system and stop reengineering the healthcare system from the top down.  I am not sure how that would come out on the Warren-meter.

But there is common ground.  Can that be leveraged into political compromise that would yield a positive result?

When I wrote about the Millennial generation last year (I think I’m turning liberal, I really think so), I expressed hope that the current crop of coming-of-age citizens would move us forward.  I wrote,

“Today’s urban youth will continue to be socially liberal.  But, they are unlikely to tolerate the downsides of an unsustainable model that has its roots in the experience of their great grandparents.  A generation of Americans that grew up with the Internet isn’t going to tolerate public institutions that operate on a 19^th Century bureaucratic model. Nor will they tolerate a healthcare system that absorbs more and more of our national income without improving outcomes, a social safety net that will collapse of its own weight or an education system that doesn’t match graduates with jobs and careers.”

The oldest of the Millennials turns 35 next year, about the age when they start to have influence on businesses and other institutions.  How?

A Millennial seeking to have an impact is Argentine political activist Pia Mancini, director of non-profit foundation DemocracyOS.  In a TED talk in Rio de Janeiro, she points out that today’s democratic governments are so unresponsive to the populace that we only have two choices – silent assent or violent protest.

Silence or violence – not much of a choice!

She postulates that the 18^th Century mantra “no taxation without representation” should be updated to “no representation without a conversation”. Technology has enabled us to have a global conversation on any topic.  Why not include our legislators in the dialog?  Or, conversely, why haven’t they included us?

 

Pia Mancini

Ms. Mancini and her colleagues have developed software, including a smartphone app that allows legislators to interact with citizens during debates on critical issues.  She has convinced the Argentine government to experiment with it.  She is hopeful.

My concern is that our politicians are too facile.  They use punditry to convince us that simplistic solutions will solve the big issues of the day. 

Do you believe that “income inequality” is a problem?  The President tells us that raising the minimum wage is the solution. 

It isn’t.

Government deficits and debt will burden our children and grandchildren.  Can we resolve those deficits only by cutting non-defense discretionary spending? 

No, we can’t.

Rising ocean temperatures threaten our coastlines.  Will government investment in green technology companies solve that problem? 

No. It won’t.

We have seen masses of people marching in the streets in the last few years – Hong Kong, Cairo, Tehran, New York.  What has it accomplished? 

In the absence of violent overthrow, not much.

Can technology that connects us to our institutional leaders offers the opportunity that Ms. Mancini describes?

I don’t know.

It’s certainly a good place to start.

WHO WILL LEAD?

Big News! Elizabeth Warren and the Tea Party Agree

I used to drink the Kool-Aid.  I was in the banking industry for the early part of my career. I always thought that the restrictions that prevented investment banks and commercial banks from operating under the same roof were arcane and unnecessary.  With the benefit of hindsight, I can see that I was wrong about that. 

The Glass-Steagall Act was passed during the Great Depression (1933) with the intention of preventing government insured depository institutions (banks!) from taking too much risk at taxpayers’ expense.  The elimination of Glass-Steagall approved by a Republican Congress with enough Democrats to provide a veto proof majority and signed by President Clinton in 1999 was, in the minds of many, on the critical path to the financial crisis in 2007.

The champion of re-implementing those safeguards was Elizabeth Warren who, in 2010, was Sen. Harry Reid’s appointee to the Congressional Oversight Panel on TARP.  But, she was not alone.  Sen. John McCain (R-AZ) co-sponsored legislation to restore those regulations as did the bi-partisan duo of Sherrod Brown (D-OH) and David Vitter (R-LA) in the House.  In the end, we had to settle for the Volcker Rule that bans banks from using depositors’ funds for proprietary trading.

The Tea Party, a movement that has libertarianism roots, nevertheless agrees the restoration of the Glass-Steagall prohibitions would be productive.  The Tea Party Tribune recently featured a banner headline on the subject that reads “Bring Back Glass-Steagall” and mirrors Warren’s opposition to the Too Big To Fail (TBTF) banks.

Now a US Senator from Massachusetts, Warren has attracted attention from the liberal wing of the Democratic Party, those who think of President Obama as a centrist.

How was a former professor and government bureaucrat able to leverage her limited experience into a Senate seat on her first run at political office?

She did so by tapping into the anger that Americans feel across the political spectrum. 

Sen. Elizabeth Warren (D-MA)

There seems to be alignment between the origins of the support for both Sen. Warren (and what is now being called the “Warren Wing” of her party) and the Tea Party. They agree on who to be angry with – Wall St. and other corporate interests that have their way with our political system; and, politicians that seem to be in their thrall. 

There’s even some alignment between the philosophical underpinnings of their respective platforms.  Here’s a quiz for you.  What is the source of this philosophy?

“Government … has three basic functions:

  

1.  Provide for the national defense.

2.  Put rules in place… that are fair and transparent.

3.  Build the things together that none of us can build alone – roads, schools, power grids….”

Sounds simply and basic.  Must be a libertarian, right?

Well, no.  It’s from Sen. Warren’s blog. 

I was trying to tantalize you with my headline and chose an issue where the far left and far right are aligned to back it up.  But, it’s fair to say that when it comes to solutions, those two extremes are far apart.

Unlike the Tea Party, the Warren Wing of the Democratic Party, as it is now called, as well as Democrats more generally believe in government solutions.

I could go on about how and why I think their approach will lead to failure.  Perhaps, that would be the subject of another post (or three).  However, that’s not my focus here. 

The Tea Party wing of the Republican Party has become an obstacle to progress.  Lacking seniority in the House and seeking more clout, they prefer to stand on principle rather than seek compromise to find solutions to the major structural problems we now face – tax reform, unsustainable entitlement programs, an undereducated workforce and so on.

Will the Warren Wing act the same way?  Will the rise of a hard left to counterbalance the hard right be nothing more than political intransigence positioned as unwillingness to compromise on values?

The common origins of our anger and frustration with Washington represent an opportunity to find common ground – even as it requires us to compromise some of our principles -- to address the big issues of the day.

We were promised a “grand bargain”.  I’m still waiting.

WHO WILL LEAD?