Thursday, February 25, 2010

Should 41 = 51?

Senator Evan Bayh of Indiana decided not to run for re-election this fall. In a Sunday Opinion in the New York Times last week, he cited the failure of the United States Senate to conduct business because of the filibuster rule.

"The Senate should reform a practice increasingly abused by both parties, the
filibuster. Historically, the filibuster was employed to ensure that momentous
issues receive a full and fair hearing. Instead, it has come to serve the
exact opposite purpose--to prevent the Senate from even conducting routine
business."

According to the historian of the Senate, the term filibuster has origins from the Dutch word meaning pirate. In the early days of the republic, both houses allowed unlimited debate. As House membership grew it was abandoned, but remained in the Senate. In 1917, senators adopted rule (Rule 22), at the urging of President Woodrow Wilson, that allowed the Senate to end debate with a two-thirds majority vote, a procedure called "cloture". The new Senate rule was first put to the test in 1919, when the Senate invoked cloture to end a filibuster against the treaty of Versailles. The late J. Strom Thurmond of South Carolina holds the record of 24 hours 18 minutes against the Civil rights Act of 1957.

Filibusters are becoming more frequent. Last fall they were used to stall the legislation to extend unemployment insurance. Now the simple threat of a filibuster from one senator can halt progress on any legislation. Today, we have ideological gridlock over health care financing legislation. The 60 vote "supermajority " of the Democrats has been lost with the election of Senator Brown of Massachusetts, so that the threat of filibuster by the Republican minority can stop a vote and eventual passage of bills already passed by both houses of Congress. So a majority does not rule! Forty-one(41)votes obstructs the more than a majority fifty-nine(59) votes.

But is the game over? The answer is fortunately "NO". Again rules can be made to trump rules. There is an arcane rule in the Senate call the "budget reconciliation" rule. The rule will, after differences in the house and Senate bills have removed differences by compromise, allow passage by a simple majority in the Senate and House. This rule was passed in the 1974 Congressional Budget Act. This rule applies in the Senate to all legislation affecting the budget, and the health legislation would certainly qualify. The same act also limited debate in both houses to 20 hours and in the Senate, NO FILIBUSTERS ARE ALLOWED. Somebody was thinking. It should be pointed out that, Congress has used the reconciliation rule to apply to non-budget issues as the Republicans did in 1996 to pass major welfare legislation. In fact it has been used 19 times to get President Clinton's budgetary policies through in 1994, and the tax package cuts of President George W. Bush.

So if 59 can really beat 41, who not do it and do it now? If the people have spoken in the last election and there is a clear majority, why not do what the people's representatives have decided? The argument seems to be that the passage would be bullying the minority and that the majority is not listening to the minority. The idea that the minority can upon occasion be right is being offered as argument. Critics are also harping on the sol-called "sweet" deals. Summing it up at the bipartisan session at Blair House today, using the reconciliation rule, according to Senator Lamar Alexander, would be "jamming through in a partisan way".

What is the prospect? As long as the minority decides to obstruct the majority from governing, as long as campaigning continues after an election, as long as there is no real debate, there will be not only no progress on health care finance legislation, but none on Wall Street reform, none on ending wars, and none on reversing our bankruptcy trajectory.

Please, talk to your legislators about talking to each other. If we are not willing to revoke the filibuster rule, then let us invoke the reconciliation rule and move on.

Wednesday, February 3, 2010

Why Not Adopt The Volcker Rule?

Quoting from President Obama's remarks on financial reform on January 22, 2010 "This economic crisis began as a financial crisis, when banks and financial institutions took huge, reckless risks in pursuit of huge profits and massive bonuses". There is not a single economistin the western world who would argue with the observation that excessive leverage was a root cause of the financial crisis. Take Bear Stearns as an example. They were leveraged 100 to one on the weekend that they failed. That meant simply that they were in a situation where they had borrowed to the max--that they had made a bet putting up all of their money so that a 1% maarket drop would result in loosing 100%. Not even the most reckless bookie in Vegas would ever do such a dumb thing. Venerable and supposedly brilliant Lehman Brothers was hardly any better or smater, failing with leverage over 80%.
What the president was saying was that the banks were playing in the same game, their trading desks in the risky game of subprime mortgages, derivatives, and credit default swaps plus gambling in the oil futures markets. They were funding hedge funds, and trading themselves like hedge funds. It is obvious that we need a limit on risk taking in the name of stability, reliability and future growth.
Now the House of Representatives has passed the necessary financial reform to curtail this risk taking under the leadership of Rep. Barney Frank and the Senate is now working to follow through under the chairmanship of Senator Dodd. It was before his Senate Banking Committee that former chaiar of the Federal Reserve, Paul Volcker testified yesterday.
Volcker appeared before the congress on February 2nd. His public testimony held that high risk trading such as hedge fund acvtivigties should not be part of standard commercial banking. Banking licenses should not be given to institutions that cause failures through extraordinary risk. Excessive leverage and inadequate capital to support liquidity should not be allowed. The idea is to have procedural safeguards that step in to cause bankruptcy rather than allowing such banks to become too big to fail.
The President's current proposal provides for an authority that would intervene and prevent excesses of proprietary trading[translate casino activities using depositors' money]. Conflicts of interest such as between bank brokerage activities and the brokerage "research" should not be allowed to provide leverage whch such an authority would limit or eliminate. Banks should not be trading for themselves and sustaining losses that undermine their stability and their central mission. Such inside funds should not be able to profit from knowledge of customer business. Attempted separation ("Chinese walls")eventually do not work. There is plenty for banks to do without going beyond commercial community needs. Commercial banking should be clearly defined and fundamentally conservative as they were meant to be. This in the end brings good competition and a stronger system.
All this was undermined by the majority leader of the committee, Senator Richard Shelby of Alabama, who appeared on CNBC Financial the same afternoon and held that we have all the regulation we need, and that the Volcker Rule was unnecessary and he would not support it. After the greatest financial disaster in more than a century, I would hope that the Senate does not follow his lead. I can only assume that Senator Shelby would allow banking firms to continue to run hedge funds and any leverage they please while running a bank backed by the US Taxpayer.
Let's adopt the Volcker Rule. Let us take the casino out of the commercial banks and never require such bailouts again.