Monday, February 02, 2009
Culture of Corruption, Eh?
One of the main issues that swept the Democrats into Congress in 2006 was the charge that Congressional Republicans had created a "culture of corruption". This charge was no small part of what Barack Obama campaigned on in 2008 to win the presidency. It is becoming increasingly clear, however that the Democrats have their own culture of corruption, one that far eclipses that shown by the Republicans. More significantly, the corruption exercised by the Democrats gets to the heart of national policy, rather than the offensive sideshow that we saw under Republican leadership.
The Democrats' corruption is particularly evident in the Congress. We are currently being treated, for example, to a "stimulus" package, less than 12% of which is actually stimulus. That bears consideration. Rather than a package with a goal and a little waste, we're getting a package with waste and a little goal. The Congress offering up this package includes such luminaries as Senate Banking Committee Chairman, Chris Dodd, who still hasn't released the details of his sweetheart mortgage from subprime lender Countrywide, House Financial Services Committee Chairman, Barney Frank, who was live-in lovers with one of the executives of Fannie Mae (focusing on their subprime program, no less), and House Ways and Means Committee Chairman, Charles Rangel, who is being given a pass for both tax evasion and fraudulently acquiring multiple subsidized low-income housing units. Significantly, these aren't minor, party back-benchers, like Eleanor Holmes Norton, Al Franken, Alcee Hastings, or William Jefferson. These are members of the Democratic Congress's leadership. This same leadership, despite its claims of bipartisanship, has specifically moved to remove rules established in 1994 to allow minority party input into the legislative process. And less we think, somehow or other, that these are just isolated cases, we merely need to look at Congressional reactions to the recent revelation of Tom Daschle's (D,SD) failure to pay taxes on his limousine services as a high-paid lobbyist. It was described by Democratic Senate Finance Committee Chair, Max Baucus as "disappointing mistakes" and was dismissed by WV Democrat Jay Rockefeller as needing to be compared "in terms of the moral necessity of getting universal health care."
Now, the revelations above regarding Messrs. Dodd and Frank might come as shock, especially in light of the extent to which the two have been busy lambasting Wall Street for the financial crisis. Left unmentioned in their their critique is the role on the crisis played by the GSEs - Fannie Mae and Freddie Mac. You see, far from third parties or accidental victims in the mortgage meltdown, Fannie and Fredddie were active participants in the subprime market. In fact, the GSE's owned a remarkable 10% of the subprime assets outstanding. Even this 10% figure, however, belies the role the GSEs played in the subprime market to the extent that, unlike market makers, the GSEs were not market neutral, offsetting demand pressures with supply pressures. Instead, they had a net long position, specifically a leveraged long position. Unfortunately, in addition to their core business of repackaging mortgages into mortgage-backed securities, the GSEs expanded into directly investing in mortgage assets. To finance this business, Fannie and Freddie relied on their implied guarantee from the federal government. This guarantee allowed them to borrow at below-market rates and collect the spread between this rate and that they realized on their mortgage investments. Trying to boost returns still further, the GSEs began purchasing subprime paper. As a result, GSE losses are looking somewhere in the area of $238 billion. More problematically, the GSEs role of one-way market maker added impetus for the expansion and growth of subprime lending and securitization.
By all accounts, while the bubble was still running, Fannie and Freddie's executives did very, very well, walking away with compensation in the hundreds of millions of dollars. But, the GSEs were not private, independent businesses. They were, for all intents and purposes, sinecures for well placed Democrats. In fact, they had been compared to "retirements homes for Democratic staffers". To see this, look at their excutives: CEO Franklin Raines, Clinton White House budget director and Carter White House Domestic policy staff assistant director; CEO Jim Johnson, Walter Mondale's executive assistant, campaign manager for Mondale's 1984 run, and VP selection chair for John Kerry; or Vice Chairman and General Counsel Jamie Gorelick Janet Reno protoge and 9/11 enabler.
Now, you might be inclined to dismiss all of this as the Democrats' old ways swept now being swept aside in a wave of hopey changitude by Obama adminsitration. But, this interpretations leaves open some very serious questions. Mr. Daschle's, Treasury Secretary Timothy Gaithner's and Chief Performance Officer (isn't that the CEO, or President's job?) candidate Nancy Killefer's tax problems were known before they were nominated. President Obama's Chief of Staff, Rahm Emanuel was in conversations, conversations he denied having, with with Illinois Gov. Rod Blagojevich regarding the latter's appointment to Pres. Obama's vacated Senate seat. Notably, the contents of this conversation are unlikely to be revealed now that the Gov. has been impeached. Even looking at the President himself, we see his long-standing relationship with now-convicted Illinois political operator Antonin Rezko has already been established. However, it's worth noting that even the Finance Chair of Obama's 2008 campaign, Penny Pritzker (yes, of those Pritzkers) ran a failed subprime lender. Already, an administration that has vowed that it would ban lobbyists from serving in the White House has appointed 12 to his goverment already (Not that I necessarily believe that lobbyists are inherently bad. Lobbying itself strikes me as very much within the scope of redressing of greivances. But, to the extent the administration has identified it as a bad thing, I think they're obligated to act accordingly.).
The American system relies, in no small part, on the anonymous nature of our laws, as exemplified by the image of a blindfolded justice. But that principle goes beyond the adjudication of our laws to the nature of the laws themselves. Our constitution forbids laws retroactively and specific to the individual. We are cautious in the initiation of new laws because we know they can well apply to us and we accept laws because we know they are being universally applied. Corruption, and its acceptance by the public, however, undermines this tradition. The current Democratic leadership is increasingly showing itself to consider the behavior I've discussed as completely acceptable on its own part. Worse still, it treats the negative consequences of this behavior as an opportunity to exercise rulership over the country as a whole. Given the role that Democratic corruption played in the current crisis, one would think simple shame might give them pause. Instead, we're seeing these same politicians both aggrandize their own power and pose further restrictions on the public. In a very real sense, then, this corruption undermines the premise on which America's social contract is based. Should this trend continue, I'd be surprised if the country does not eventually see a period of civil unrest.
One of the main issues that swept the Democrats into Congress in 2006 was the charge that Congressional Republicans had created a "culture of corruption". This charge was no small part of what Barack Obama campaigned on in 2008 to win the presidency. It is becoming increasingly clear, however that the Democrats have their own culture of corruption, one that far eclipses that shown by the Republicans. More significantly, the corruption exercised by the Democrats gets to the heart of national policy, rather than the offensive sideshow that we saw under Republican leadership.
The Democrats' corruption is particularly evident in the Congress. We are currently being treated, for example, to a "stimulus" package, less than 12% of which is actually stimulus. That bears consideration. Rather than a package with a goal and a little waste, we're getting a package with waste and a little goal. The Congress offering up this package includes such luminaries as Senate Banking Committee Chairman, Chris Dodd, who still hasn't released the details of his sweetheart mortgage from subprime lender Countrywide, House Financial Services Committee Chairman, Barney Frank, who was live-in lovers with one of the executives of Fannie Mae (focusing on their subprime program, no less), and House Ways and Means Committee Chairman, Charles Rangel, who is being given a pass for both tax evasion and fraudulently acquiring multiple subsidized low-income housing units. Significantly, these aren't minor, party back-benchers, like Eleanor Holmes Norton, Al Franken, Alcee Hastings, or William Jefferson. These are members of the Democratic Congress's leadership. This same leadership, despite its claims of bipartisanship, has specifically moved to remove rules established in 1994 to allow minority party input into the legislative process. And less we think, somehow or other, that these are just isolated cases, we merely need to look at Congressional reactions to the recent revelation of Tom Daschle's (D,SD) failure to pay taxes on his limousine services as a high-paid lobbyist. It was described by Democratic Senate Finance Committee Chair, Max Baucus as "disappointing mistakes" and was dismissed by WV Democrat Jay Rockefeller as needing to be compared "in terms of the moral necessity of getting universal health care."
Now, the revelations above regarding Messrs. Dodd and Frank might come as shock, especially in light of the extent to which the two have been busy lambasting Wall Street for the financial crisis. Left unmentioned in their their critique is the role on the crisis played by the GSEs - Fannie Mae and Freddie Mac. You see, far from third parties or accidental victims in the mortgage meltdown, Fannie and Fredddie were active participants in the subprime market. In fact, the GSE's owned a remarkable 10% of the subprime assets outstanding. Even this 10% figure, however, belies the role the GSEs played in the subprime market to the extent that, unlike market makers, the GSEs were not market neutral, offsetting demand pressures with supply pressures. Instead, they had a net long position, specifically a leveraged long position. Unfortunately, in addition to their core business of repackaging mortgages into mortgage-backed securities, the GSEs expanded into directly investing in mortgage assets. To finance this business, Fannie and Freddie relied on their implied guarantee from the federal government. This guarantee allowed them to borrow at below-market rates and collect the spread between this rate and that they realized on their mortgage investments. Trying to boost returns still further, the GSEs began purchasing subprime paper. As a result, GSE losses are looking somewhere in the area of $238 billion. More problematically, the GSEs role of one-way market maker added impetus for the expansion and growth of subprime lending and securitization.
By all accounts, while the bubble was still running, Fannie and Freddie's executives did very, very well, walking away with compensation in the hundreds of millions of dollars. But, the GSEs were not private, independent businesses. They were, for all intents and purposes, sinecures for well placed Democrats. In fact, they had been compared to "retirements homes for Democratic staffers". To see this, look at their excutives: CEO Franklin Raines, Clinton White House budget director and Carter White House Domestic policy staff assistant director; CEO Jim Johnson, Walter Mondale's executive assistant, campaign manager for Mondale's 1984 run, and VP selection chair for John Kerry; or Vice Chairman and General Counsel Jamie Gorelick Janet Reno protoge and 9/11 enabler.
Now, you might be inclined to dismiss all of this as the Democrats' old ways swept now being swept aside in a wave of hopey changitude by Obama adminsitration. But, this interpretations leaves open some very serious questions. Mr. Daschle's, Treasury Secretary Timothy Gaithner's and Chief Performance Officer (isn't that the CEO, or President's job?) candidate Nancy Killefer's tax problems were known before they were nominated. President Obama's Chief of Staff, Rahm Emanuel was in conversations, conversations he denied having, with with Illinois Gov. Rod Blagojevich regarding the latter's appointment to Pres. Obama's vacated Senate seat. Notably, the contents of this conversation are unlikely to be revealed now that the Gov. has been impeached. Even looking at the President himself, we see his long-standing relationship with now-convicted Illinois political operator Antonin Rezko has already been established. However, it's worth noting that even the Finance Chair of Obama's 2008 campaign, Penny Pritzker (yes, of those Pritzkers) ran a failed subprime lender. Already, an administration that has vowed that it would ban lobbyists from serving in the White House has appointed 12 to his goverment already (Not that I necessarily believe that lobbyists are inherently bad. Lobbying itself strikes me as very much within the scope of redressing of greivances. But, to the extent the administration has identified it as a bad thing, I think they're obligated to act accordingly.).
The American system relies, in no small part, on the anonymous nature of our laws, as exemplified by the image of a blindfolded justice. But that principle goes beyond the adjudication of our laws to the nature of the laws themselves. Our constitution forbids laws retroactively and specific to the individual. We are cautious in the initiation of new laws because we know they can well apply to us and we accept laws because we know they are being universally applied. Corruption, and its acceptance by the public, however, undermines this tradition. The current Democratic leadership is increasingly showing itself to consider the behavior I've discussed as completely acceptable on its own part. Worse still, it treats the negative consequences of this behavior as an opportunity to exercise rulership over the country as a whole. Given the role that Democratic corruption played in the current crisis, one would think simple shame might give them pause. Instead, we're seeing these same politicians both aggrandize their own power and pose further restrictions on the public. In a very real sense, then, this corruption undermines the premise on which America's social contract is based. Should this trend continue, I'd be surprised if the country does not eventually see a period of civil unrest.
