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The Rise of the Reverse Houdinis
Oct 12th, 2011 | 27 responses
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WASHINGTON — So let’s see: The solution to large-scale abuses of the financial system, a breakdown of the private sector, extreme economic inequality and the failure of companies and individuals to invest and create jobs is — well, to give even more money and power to very wealthy people, to disable government and to trust those who got us into the mess to get us out of it.
That’s a brief summary of the news from the Republican Party this week. It’s what Republican candidates said during the Washington Post-Bloomberg debate, and it’s the signal Senate Republicans sent in voting as a bloc against President Obama’s jobs bill. Don’t just do something, stand there.
Those who have plenty of capital to invest are holding back because consumers don’t have enough cash. But let’s not give potential middle-class buyers jobs and money to spend. No, let’s heap yet more resources onto investors. And if sharp guys made fortunes writing abusive mortgages, let’s repeal all the rules we just passed to prevent them from doing the same thing again.
Better yet, don’t blame the people who got the windfalls. Blame poor people. Thus did Rep. Michele Bachmann place responsibility for the mortgage mess on the Community Reinvestment Act, a law aimed at preventing discrimination against people in neighborhoods, many of them predominantly African-American, where banks wouldn’t make loans. The CRA had nothing to do with the proliferation of subprime mortgages; old-fashioned greed did the trick there. But it’s so much easier to pass the buck to the powerless. They don’t make many campaign contributions.
Then there is Herman Cain’s 9-9-9 tax plan, the only policy proposal to get really serious attention at Tuesday’s encounter. The biggest flaw in Cain’s scheme barely got discussed. It is designed to shift the tax burden away from the wealthy and toward the middle class and the poor by cutting income, corporate, capital gains and estate taxes. It would then collect a lot of new money from a 9 percent federal sales tax, layered on top of existing sales taxes. Plutocracy, thy name is 9-9-9.
Former Massachusetts Gov. Mitt Romney, who dominated the debate, is much smoother than his adversaries. He even had some good words for the struggling middle class and spoke with concern about getting health insurance to children. (Romney’s desire to provide poor kids with a chance to see a doctor will surely bring down upon the architect of Obamneycare charges of socialism.)
For the most part, though, Romney was selling the same wares as everyone else. “The answer is to cut federal spending,” he said. “The answer is to cap how much the federal government can spend as a percentage of our economy and have a balanced budget amendment.” But wait: This was the answer to every question that was posed in New Hampshire. There’s no problem that can’t be solved if the federal government just does absolutely nothing about it.
And thus spoke Republicans in the Senate on the same day as the debate. In any other democracy, we would say that Obama’s jobs bill passed its first test in the Senate because 51 out of 100 senators were for moving it along. But not in America, where we now require 60 votes to get a bill out of the Senate — despite the fact that our Constitution, supposedly so revered by conservative “strict constructionists,” says absolutely nothing about a Senate supermajority.
The jobs bill is a pretty simple mix of tax cuts and spending on popular items such as schools and roads. Its core idea accords with what the vast majority of economists (and a lot of business people) think needs to be done now: In the absence of private-sector investment and job creation, the federal government should be the investor of last resort to get the economy moving. This should be an urgent priority with unemployment stuck at more than 9 percent.
But no, “don’t do something, stand there” is the order of the day. Every Republican senator present voted to block the jobs bill. Government is to be powerless because the country’s most energetic ideological minority has declared that it must be powerless.
Years ago, Rep. Barney Frank, the Massachusetts Democrat much maligned during the Post/Bloomberg debate, introduced me to the concept of the “Reverse Houdinis.” They are people who tie themselves up in knots and then declare, “I can’t do anything because I’m all tied up in knots.” We seem on the verge of putting Reverse Houdinis in charge of our government.
E.J. Dionne’s email address is ejdionne(at)washpost.com. (c) 2011, Washington Post Writers Group
27 Responses to “The Rise of the Reverse Houdinis”
Strange, I see no mention of the SEC and the Fed to do their jobs, not to mention Fannie and Freddie for making it safe to push loans that would likely fail within a few years. Wouldn’t the failure of these agencies also make them part of “those who got us into the mess”, and yet expect them to get us out of it?
And of course the problem is Greed. Because, you know, that’s something new that the Republicans legislated into existence. Sorry, greed has been with long before this country existed, so it’s stupid to blame it for our current situation. Greed usually gets stopped both other people’s greed through the market or occasionally their anger through the courts. What’s needed for a disaster is protection from competition and failure, which is what Fannie, Freddie, the Fed, the bailouts, the tax loopholes, and host of other laws provided.
I also find it a little clueless to think that Frank (and Dodd) did anything more with their bill than pacify the masses without addressing the real problems.
True, the Republicans are doing a fine job of avoiding many of the root causes. But they’re not competing against a party that wants to take on the financial sector, they’re competing against Democrats.
E.J. this is one of the most slanted pieces I have read in awhile and has nothing to do with having a moderate voice.
I can’t stand Bachmann, but she was not knocking the predominantly African American consumers who received loans; she was criticizing the institutions that made loans to people not qualified to repay them…with little or no oversight, I might add.
I will further add that your reverence to Barney Frank as your mentor does nothing to add much credence to your opinions being fair and balanced.
Your take on the failure of congress to pass the jobs bill is also goofy. Didn’t we just have a massive money give-a-way that was supposed to create jobs? How did that work? Before another $10,000 debt brick is placed upon my grandson’s head, I want to know that good money is not beign thrown after bad.
We just had the bi-partisan Simpson-Bowles committee make all sorts of recommendations that Obama has completely ignored, and I happen to think that this group is much, much smarter than our president, his cabinet, or current sitting congress.
Huh? Banks discriminated against those neighborhoods because they were filled with subprime borrowers. Ending the discrimination inevitably meant writing more subprime mortgages.
In fairness, the CRA tried not to encourage banks to write bad loans, and it certainly didn’t excuse fraud or exploitation on the part of mortgage writers. But between the Fannie Mae carrot and the CRA stick, the government created conditions for greedy business practices to pay off.
I continue to be amazed when I see tribal loyalties trump sound reasoning ability, although by now I shouldn’t be. Any of these republicans, given enough power, would probably make todays problems look like kid stuff. It doesn’t take a mental giant to understand why EJ is right, but it does take clear thinking.
What are you talking about, JSpencer? ProfElwood criticized the Republicans, malcontent criticized Michele Bachmann, and I criticized unethical mortgage writers. To what tribe are you claiming we’re being loyal?
First off, the CRA was actually pretty successful for a gov’t program. Initially, the repayment rates were excellent. Because they were so good, other institutions wanted to get in on the pie. And so the hell what if Fannie and Freddie started the ball rolling with the subprime mortgage mess? They didn’t put guns to the head of BoA and the other major banks and force them to institute bad policies. I remember reading in 2006 that banks were no longer checking the info on loan applications. WHO THE HELL MADE THEM DO THAT? No one. They saw a chance for a quick buck, needed more mortgages to roll into securities, so they threw out safe business practices to get as much of the pie they could before the music stopped.
I want to repeat this point, NO GOVERNMENT AGENCY FORCED THE LENDING INSTITUTIONS TO ABANDON SAFE PRACTICES AND SHOOT THEMSELVES IN THE FOOT. THEY DID IT THEMSELVES.
This is roughly the equivalent of a hospital suspending one of their safe practices, having surgeons scrubbing in before operating. Why not? We haven’t had an infection from germs in awhile, so I guess we don’t need to scrub in before surgery anymore. Oh, thats crazy you say? Well the hospital down the road is doing it, so its ok for us to do it, right? I can just throw my hands up in the air and blame them for my willfully stupid policy. Because I’m not an expert in my field able to judge risk, I’m just a sheep that has to follow whatever the other guys do even if its blatantly stupid in the long term.
Again, something both liberals and conservatives fail to grasp is the connection between responsibility and freedom (or accountability and power). Because the GSEs paid full price for loans, without any real checking for their creditworthiness, they took the risk of making bad loans away from the originators. After a set period, they couldn’t come after the originator. Why are people surprised that the originators went wild with bad loans? This is the exact same thing that happened with the FSLIC scandal (the insurance was fixed, regardless of risk, because the original rules assumed that all institutions were making mortgage loans. When the rules were changed to allow investment into just about anything, at any risk, the rules for the rates weren’t.)
Still think that the GSEs weren’t part the proliferation of Mortgage Backed Securities (MBS)? Then argue it with the government:
Interestingly, this is a SEC report from 2003, long before the MBS market imploded.
The roots of the recession, the bank crisis and the mortgage crisis are all solidly bipartisan. Dionne’s point is a good one, why should we trust the people who got us into this to get us out of it? He applies it too narrowly though, which makes him as guilty as the GOP debaters.
True, Slam, but they didn’t do it alone.
The lenders (and the rest of the finance industry) screwed up in a big way, and they should be held accountable. And accountability for private businesses should mean losing money, in this case lots of it. Bankruptcies. Companies demolished. Shareholders wiped out. Fortunes ruined. Possessions auctioned off. Brokers hurling themselves from their windows like in the old days.
But accountability means something different for the public sector, because it’s the government’s–not Bank of America’s–job to look after the public trust. We not only pay our public servants explicitly for that, we grant them much more authority, including a monopoly on the use of force to enforce the rules.
We can wish that Countrywide or Goldman Sachs or S&P behaved differently, and we can prosecute them if they broke the law, but we simply don’t have a contract with them comparable to the one we have with Congress. If you’re going to demand accountability for the financial crisis, you need to demand it first and foremost from our elected officials.
Well said “J” let’s ‘string up’ the “Architects of the American Fall from Grace” (Phil Gramm (R – Texas), Jim Leach (R – Iowa) , and Tomas Billey (R – Virginia)) and be done with it.
Center for Economic and Policy Research – A Short History of Financial Deregulation in the United States points out that it wasn’t government interference and regulation that brought this on us it was DEREGULATION and morally corrupt politicians like Phil Gramm (R – Texas), Jim Leach (R – Iowa) , and Tomas Billey (R – Virginia) that brought middle class America to it’s knees and Multi-national Corporations to a position of absoulte control.
The 1999 Gramm-Leach-Bliley Act – With support from Fed Chairman Greenspan, Treasury Secretary Rubin and his successor Lawrence Summers, the bill repeals the Glass-Steagall Act completely… REPUBLICAN DEREGULATION.
And the 2000 Commodity Futures Modernization Act – Spearheaded mainly by Phil Gramm (R – Texas) officially ensured the deregulation of financial products known as over-the-counter derivatives… REPUBLICAN DEREGULATION.
But still the ‘righties’ here at TMV keep trying to sell the lie that it’s BIG GOVERNMENT DEMOCRATS not DEREGULATING SMALL GOVERNMENT REPUBLICANS that are to blame.
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Here’s a section of the Center for Economic and Policy Research Report that I linked to above:
And the 2000 Commodity Futures Modernization Act – Spearheaded mainly by Phil Gramm (R – Texas) officially ensured the deregulation of financial products known as over-the-counter derivatives… REPUBLICAN DEREGULATION.
Can’t imagine why you left out this part from your own link:
2000, Commodity Futures Modernization Act – Passed with support from the Clinton
Administration, including Treasury Secretary Lawrence Summers, and bi-partisan support in
Congress.
And darn those Republicans Larry Summers, Robert Rubin and Bill Clinton.
DaGoat,
Had you taken the time to read the whole article (the wiki link) you’d see the back-handed, under-handed stunts pulled by Gramm et al and you wouldn’t have had to ask.
I know however how much fun you had typing “And darn those Republicans Larry Summers, Robert Rubin and Bill Clinton.” so you feigned ignorance gets a ‘pass’ and you can keep pretending that in a government with a President (Democrat) being impeached and a House and Senate firmly in republican control that this was a plot dreamed up by Democrats… Go ahead.
The plot was not dreamed up by Democrats, it was truly a bi-partisan effort. Why are you trying to protect the Democratic party from their share of the blame, though? And I am not defending the Republicans, of course they were all for deregulation and deserve the criticism.
Republicans being bad does not mean Democrats were being good. Did you miss the part in your own link that says the bill was passed with b-partisan support? Go read Matt Taibbi’s take on this if you don’t believe me.
What a total crock of “steaming clams”, did you even take the time to read the Wiki articles on the Bills?
The “covering up” you’re think you’re doing for the frauds and criminals in the Republican Party is the main reason they’ll lose in 2012. Your time would be better spent trying to get them to acknowledge their mistakes and make corrections… But fat chance.
And that’s why I’m so pleased with what’s happening, keep it up.
I don’t know, Steve. I know it’s customary to hold presidents accountable for legislation passed on their watch only when they’re Republicans, so I’m going to risk pointing out that Clinton signed both those bills into law, and as of 2008 seemed unrepentant:
Personally I disagree with Mr. Clinton (and apparently Mr. Frank and numerous others); I’d rather see Glass-Steagal or something like it reinstated. I’m fine with financial firms taking crazy risks that may ruin them. But if the country can’t survive without certain commercial banking services, let’s fence those off and regulate them like a utility to prevent them from taking risks that threaten those services. (Actually, we need to regulate them significantly better than we’ve been doing for California power utilities, but that’s another topic.)
Glass-Steagal was overturned by the “Gramm(R)–Leach(R)–Bliley Act” which passed the Senate on a 52-R / 1-D yea… 44-D / 0-R nay vote.
SteveK I’m not going to get drawn into a partisan squabble. Personally I think both the Republican and Democratic parties suck.
I agree with Dr J that Glass-Steagall should be reinstated, especially if we as taxpayers are expected to continually bail them out.
52 to 1 isn’t a partisan squabble but I understand you’re wanting to get out of this conversation… It’s a conservative thing to do!
FWIW: Here’s a little more on Mr. Gramm’s 2000 Commodity Futures Modernization Act.
@SteveK:”Glass-Steagal was overturned by the “Gramm(R)–Leach(R)–Bliley Act” which passed the Senate on a 52-R / 1-D yea… 44-D / 0-R nay vote.”
According to the graphic on your Gramm-Leach-Bliley wiki, that was 52-R/38-D yea, 1-R/7-D nay in the Senate, and 205-R/177-D yea, 5-R/51-D nay — in other words, bi-partisan. Apparently, you got it mixed up with the Financial-Services Act, which never made it through the House.
According to govtrack.us/congress Senate Vote On Passage: S. 900 [106th]: Gramm-Leach-Bliley Act results were as I wrote above:
Though it does appear that the final vote was closer… The republicans most likely whispered to the Democrats that if they voted for it they wouldn’t Impeach Clinton.
Oh and thanks for getting back to me in the “American Autumn” thread Elwood.
Whatever, Steve. I’m unwilling to classify Clinton and the rest of the Democrats hapless victims. Our lawmakers should be held responsible for the laws they pass.
@SteveK
The original version passed the Senate along partisan lines, which agrees with the Wiki, and your roll call date of May 6th, 1999.
The vote on the final bill, passed in November, was a clear majority from both parties, in both chambers.
Votes are bought and payed for. 75% of a D.C. elected office holder’s time is spend seeking contributions to go toward re-election. There are a majority of whores on both sides of the isle, and they all take money from the same people. Until a constitutional amendment is in place to outlaw campaign contributions other than small, individual gifts, nothing is going to change.
This thread is a prime example because both Repub’s and Dem’s are responsible for our financial crash. Gramm and Frank and Dodd all were being prodded by the same people in return for throw-around money. Even now, you can see how our President defers to the Wall Street’s demands. Why did Obama kick Elizabeth Warren out in the street. She would have been an excellent head of the Consumer Financial Protection Bureau. She’s sharp, knows her business, and wasn’t afriad to tell us what was currently wrong with the banking, hedging, derivitives system. Republicans tell Obama that they are not going to support her appointment and Obama caves in without so much as a whimper. Was it the Repub’s demands or those coming straight from Wall Street into the President’s office that caused him to turn his back on her?
Clinton pushed back multiple times on GLB Act, it was after a ton of negotiations and compromise because they kept coming back at him to “take the cuffs off” industries. They were blaming over regulation for limiting free enterprise like they always do, and like they always do this plays well with voters, many of whom don’t seem to understand what these regulations are about.
And good point about the Warren nomination process. Obama’s failure to get her the job is one of my biggest disappointments with him.
Well, if they kept coming back at him, he didn’t have much choice, did he? The poor man. Do we let the Republicans off the hook the same way, by looking at the people pressuring them? Surely not.
Even so, it should have been politically very easy drum up the public support to reinstate Glass-Steagal last year. Or indeed this year. Indeed, the public support seems to be taking on a life of its own.
If someone could provide a list of what the dems got I think we would see a pattern. Something changed between those two votes. Riders were added, and each side got things they wanted. Its called compromise. Now, maybe someone should take a look at what the dems got vs. what the GOP got. I breakdown of what each side fights for is often very illuminating. I have no idea where to get that information though.