Above The Law

Revolution as Tinkering

…the only revolutionary aspect to Bernie’s thinking is that he is so certain of his righteousness that he doesn’t believe that he needs a political majority to get his way, or that he needs to follow the rules to get there.

 

I guess the entire idea of revolution is that one is so right that one is above the law.

Whether it’s the rules of a political convention, laws regarding campaign finance, or common norms for truth-telling and civilized behavior, the credo of the revolutionary depends on his being above the mundane rules which he claims everyone else is breaking.

At the core of every revolution must be an idea, a kernel around which the disregard for the current order is justified.  The central idea of Marx was that a class system existed which alienated workers from the fruits of their production, and the breaking of the rules was justified by the injustice of the system itself.  Marx’ position was truly revolutionary.  His position was that the rules were unjust, and should therefore have no moral authority to bind workers to their requirements.

Bernie Sanders proposes a “political” revolution against a system which he claims to be unjust.  When confronted with the accusation that he intends violence or constitutional overthrow, he backpedals: “we’re talking about a POLITICAL revolution”.

The silliness of this is self-evident.  What Bernie is really saying is the same as what all Democrats and Republicans are saying: “we think that some of the penumbral rules of the system are unfair, and we would like to change them.  That’s why we want you to vote for us.  We don’t think that the framework in which we make laws is either unfair or so broken that it can’t be made to work.  We just want a political MAJORITY so that we can shape the laws to our ends.”

Perhaps the only difference between what Bernie wants and everyone else wants is that he doesn’t seem to care whether he has a political majority or not.  He seems to believe that the moral force of his ideas is so great that he doesn’t need a political majority: he can obtain his legislative goals by having “millions of people outside the window”, in a misunderstanding of the differences between representative democracy and mob rule which is astonishing for a man who has been in the national legislature for twenty-five years.
As nearly as I can tell, the only revolutionary aspect to Bernie’s thinking is that he is so certain of his righteousness that he doesn’t believe that he needs a political majority to get his way, or that he needs to follow the rules to get there.  He simply wants to tinker with penumbral policies as the Republicans and Democrats do: the revolution lies in the idea that he doesn’t think he needs to follow the rules to do so.

Bernie’s campaign finance practices serve to illustrate the differences between the concepts of actual revolutionaries and Bernie’s.

 

Dollars and Sensibility

Bernie could legitimately claim he doesn’t have “a” superPAC, because he has two

The center of corruption in Bernie’s worldview seems to be campaign finance.  There is a system of funding campaigns which makes legislators beholden to obtaining campaign money, and to the efforts of lobbyists who, presumably, hold the campaign finance purse strings.

That system of finance includes a labrynth of rules which are designed to impose some sort of integrity on the process.  It’s unclear from Bernie’s rather general rhetoric whether his sensibilities are offended by the inadequacy of these rules, or by the fact that political campaigns cost money.  His insistence on the use of “corruption” as descriptive suggests that perhaps the rules are not so much bad (excluding the permissions of Citizens United), as not enforced.

Bernie promised that his campaign would be noticeably different from traditional political campaigns – that it would be above the sort of “corruption” which he implied was inherent to everyone’s campaigns but his own.  It’s impossible to know the actual intent of his promise, but one might take it two ways: perhaps he meant that his campaign would be remarkable for its transparency and legal rectitude, or perhaps he meant that he would ignore all the rules in an act of revolution.

He doesn’t seem to have fulfilled either possible meaning of his promise.  His campaign finance seems to be at the same time something less than revolutionary and something other than completely legal.

His campaign began with the proud statement that he was raising massive amounts of money from “working people” in average amounts of $27.  As it turns out, he meant that Mark Ruffalo and Bill Maher were his concept of “working people”, and they were giving an average of several dozens of donations of $27.  Bernie’s monthly campaign finance disclosures included percentages of “unitemized” (meaning “untraceable”) donations of 70 – 75%.  This is unheard of.  All campaigns deal with a certain number of unitemized donations.  This is normal.  Not all donors identify themselves, but these percentages were an order of magnitude above what is normal.

The FEC questioned these donations beginning in January 2016, and in April presented the Bernie Sanders campaign with the very real specter of having to pay back over $20 million in what had, by this time, been determined to be illegal donations.  The sad irony to this is that these illegal donations were the result of Bernie over-tapping wealthy supporters.  Typically, illegal donations aren’t refunded to donors – in Bernie’s case, the donors were unidentified, so they can’t be.  Rather, the campaign makes charitable donations in  the amount of the illegal donations.  Because Ruffalo and Maher cannot donate any more money to Bernie, the donations Bernie will have to raise in order to pay this debt will have to come from poor and working class supporters.

Bernie also repeatedly claimed that he “had no superPAC”.  This claim is technically true in two ways, but false in a much larger way.  No candidate can “have” a superPAC.  SuperPACs cannot be associated with campaigns – so Bernie’s claim that he was “different” because he had no superPAC was misleading: nobody “has” a superPAC.  Of course, if any candidate has a superPAC, Bernie could legitimately claim he doesn’t have “a” superPAC, because he has two: National Nurses United (NNU) and Progressive Kick (PK).  SuperPACs as they exist today were the creation of the Supreme Court’s Citizens United (CU) decision, so the irony of Bernie making CU a centerpiece of his picture of political corruption, while having two such superPACs supporting him, is delicious indeed.

While no candidate can have a superPAC, candidates are also forbidden from coordinating with superPACs.  A complaint filed with the Federal Elections Commission (FEC) in April lays out, in some detail, convincing evidence that Bernie is, indeed, coordinating with these two entities.

The question becomes: what revolutionary purpose is served by such egregious disregard for the integrity of campaign finance?  Is Bernie exposing the system with his profligate disregard for the rules?  The answer has to be “no”.  None of the other candidates – even Trump, whose motto is that “corruption is good” – is being pursued by the FEC in the way that Bernie is.  If Bernie’s intent was to expose a corrupt system by enabling a big “tu quoque!” when his corrupt behavior was exposed, he failed in epic fashion.  He is the only candidate who is breaking the rules this way.

If his objective was to overthrow the system in some manner by exploiting it, he’s failed there, as well.  He’s been caught, and he’s being dealt with.  If his message was that the system doesn’t correct violations, he was wrong.  The system is demonstrating its effectiveness in doing so by correcting his.

One can only conclude that Bernie repeatedly violated campaign finance laws for the most pedestrian of reasons: he thought it would give him an unfair advantage over other candidates.

 

What Would Marx Do?

Bernie’s revolutionary message seems to be: “elect me.  That’s revolutionary”.

True revolutionary thought addresses a system which is so broken that it cannot be fixed.  Bernie’s constant denials that he is a socialist, his profession that he wants to work within the current political system, exclude him as a revolutionary in any real sense.

His claim to promotion of a “political revolution” is, trivially, nothing more than a plea that he be elected.  In Bernie’s world, his election is, in itself, the only revolutionary act on the agenda.  What Bernie really means when he claims to be a revolutionary is that he is above the law.

Karl Marx is rolling over in his grave.

Systemic Risk:

….or how I learned to love big, heavily regulated banks

Coming soon.

Selling Economic Igonorance: Part 1

“The six largest financial institutions in this country today hold assets equal to about 60% of the nation’s gross domestic product.”

~ Bernie Sanders [1]

The level of deception inherent in this pseudoformula is truly astounding.  It bespeaks either of an amazing lack of understanding on the senator’s part, or of a deliberate attempt to rouse a rabble over something which may actually be to their benefit.  His rhetoric is designed to personalize problems which prevent us from seeing reality, and to attack things in ways which do us no good.

There are three specific reasons Sanders’ statement should be ignored: first, it is a comparison of two things which cannot be compared; second, it makes the assumption that bank “wealth” is increasing in concentration as a result of an increase in assets; and finally, it appeals to one’s emotions without explaining the importance of any number of banks having any quantity of assets.

Is the question a concern over inequality of wealth, or is it over financial stability?  Sanders’ language confounds the two concerns, with his free equivocation between the terms “TBTF” and “inequality”.  In fact, the size of big banks may or may not have anything to do with inequality, and their large size may actually increase financial stability.

Apples and Oranges, Stock and Flow

If I told you that a ranch had more square miles than a car speeding on the highway, you would look at me as if I had the IQ of escargot.  Yet when Bernie says fundamentally the same thing about banks, it’s an applause line.

How are they the same?

They are both a manipulation of two types of units – those representing stocks, and those representing flows.

It’s easy to recognize the fallacy in the ranch and car example: “miles” are not the real units, miles are a supporting unit used to measure very different things: area (square miles), and speed (miles per hour) [2].  The comparison is between two very different things which have no natural ratio.  If the ranch has 100 square miles and a car speeds on the freeway at 70 mph, is that a good thing or a bad thing?  The two have absolutely no relation to each other.

The deception in Sanders’ argument lies in the use of the word “assets”.  Assets are things measured in a supporting unit (dollars), and so is GDP.  But the measurement of assets and GDP use units just as different as the measurements of area and speed.  GDP does not measure assets.

Assets are a stock of something – a pile of elements which are beneficial to whomever owns them.  GDP is a measure of spending (or income), which is a flow of funds from buyers to sellers.  A high GDP may result from a small pile of assets, or a low GDP from a large one.

In accounting, there is a difference between measures of stock and measures of flow, and making sense of quantitative information depends on understanding the differences.

 

Assets, Bank Wealth, and Bank Profits

What does it mean when we say that a bank has assets?  Is that necessarily a good or a bad thing for the bank, or for the rest of us?

Assets, of course, cannot exist in isolation.  Since at least the time of Luca Pacioli in the 15th century, it was understood that bookkeeping depended on a system of entering every element of stock and flow twice, in order both to obtain checks on the arithmetic, and to determine whether enterprises are making or losing money.

Assets are entries measuring “beneficial” stocks, and must be matched either by liabilities (“detrimental stocks”), or equities (the liability of an organization to its owners).  Liabilities show the indebtedness of an organization to outsiders, equity shows the indebtedness of an organization to its owners.

Assets must balance the sum of liabilities and equity: that’s the basic balance sheet equation.

The real question is, if assets increase, is it liabilities or equity which increase on the opposite side of the balance sheet?

With every increase in economic activity, bank assets increase.  As banks lend money to support that activity, banks create deposits (liabilities) in favor of borrowers, and simultaneously create loan receivable assets.  To say that bank assets are increasing is consistent with saying that economic activity is increasing.  As a basic economic indicator, an increase in bank assets is something that benefits us all: it means investors are investing.

That relationship is demonstrated in this chart, showing the positive relationship between bank assets and economic growth:

An increase in bank assets has no inherent meaning, other than that it correlates with economic growth.  Senator Sanders states that the assets of the largest banks are “60% of GDP”, but declines to explain why that is a bad thing.

Is a 60% share by the largest banks an increase in their share?  The asset market share of the largest banks is actually decreasing.  According to the Brookings Institution,  “Although it is generally believed that the shotgun weddings of firms orchestrated by policymakers during the onset of the financial crisis in 2008 would make big banks even bigger, the biggest U.S. banks have a smaller share of all assets today than they did during financial crisis” [3]

Sanders insinuates that his statistic represents an increasing concentration of wealth, under the presumption that an increase in the largest banks leads to increasing profitability.  In fact, the reverse may well be true.  It is true that banks had, as Sanders claims, their “most profitable year” in 2014, but that’s a little deceptive.

Sanders is measuring bank profits in absolute dollars, rather than as a return on assets – so as the economy grows, if bank return on assets remains the same, the number of dollars they receive in profits will also grow.  All else being equal, that would indicate that the concentration of wealth remains exactly the same with an increase in bank assets.

In fact, the largest banks are experience a reduced return on assets – their profits are shrinking with every dollar of capital they invest in their own activities.  As the FDIC has identified, “average return on assets (ROA) fell to 0.96 percent in the fourth quarter from 1.09 percent a year earlier. The average return on equity (ROE) declined from 9.76 percent to 8.56 percent” [4].  While it is true that profits are “up”, the share of wealth going to banks has slightly decreased.

In fact, it is only smaller banks that are experiencing increased returns on assets, and that increase is due to better loan performance over preceding years.  The larger banks are experiencing reduced returns based on two factors: increasing asset quality and the increasing cost of litigation.

The largest banks are greatly affected by two events which have motivated them to improve the quality of their assets: that is, to reduce the risk of default of the assets they hold.  The first is Dodd Frank, the much-maligned and much-misunderstood law which now affects commercial banking in profound ways.  Dodd-Frank created the Financial Stability Oversight Council (FSOC), which imposed special regulations on the largest banks, which it designated as “systemically important financial institutions”, or SIFIs.  This increase in SIFI regulation has imposed increased punitive costs on the largest banks, as well as forcing them to divest themselves of riskier assets and replace them with more reliable ones.  The second event affecting the portfolios of the largest banks was quantitative easing (QE), which forced banks, particularly those banks with the riskiest assets, to trade those risky assets for Treasuries.  This is mistakenly seen as increasing bank wealth.  It didn’t.  It simply forced banks to trade risky (but potentially very profitable) assets for risk-free assets (US Treasury bonds).

The result of these two events has been a reduction in the asset share of the largest banks, and an increase in financial stability.

Barking Up the Wrong Tree

Whether it is through deceptive comparisons of assets and GDP, or meaningless presentations of general banking data as if it applied to the largest banks, Senator Sanders is barking up the wrong tree.

The largest banks have a smaller share of the banking market than they did before the crisis, and the assets they hold pose less risk than they have in many years.  He is pretending that a problem which is being addressed is getting worse by selling populist slogans which are ignorant of the realities of economics and accounting.

Breaking up the big banks would relieve them of much of the regulation under which they labor now, enabling them to return to much more aggressive investment strategies.

Senator Sanders is relying on people not understanding these facts: Dodd-Frank has done a world of good.  Bernie’s threat to break up the big banks threatens much of that progress.

 

[1]  https://berniesanders.com/issues/reforming-wall-street/

[2] Miles per hour is a measure of speed, not velocity.  Velocity has both magnitude and direction.  Speed has no direction.

[3] http://www.brookings.edu/research/papers/2015/05/26-big-four-banks-mergers-asset-share-baily

[4] https://www.fdic.gov/news/news/press/2015/pr15020.html

 

Reply to a Young Bernie Supporter

Young Bernie Supporter:  You speak as though we are supposed to have learned some lesson from the past and that is the reason we are supposed to not vote for Bernie. I am just asking what lessons from history you are referring to.

Laura Elizabeth Teller :  The lessons are the nomination of George McGovern and the election of Jimmy Carter. They were both good people, but outsiders (although a child, I was very enthusiastic about both. I thought people would have to be fuddy duddies not to nominate them).

McGovern, like Bernie, was considered to be at the left end of the party, and the same sort of enthusiasm boosted him as has been boosting Bernie. Although a genuine American war hero, a bomber pilot in WWII who survived hundreds of missions over Europe, he was liberal to a degree far outside the liberal mainstream. He had the military credentials to be ardently antiwar without being called a coward. Revolution!

Because there were no superdelegates, and many primaries were winner-take-all, McGovern won a plurality of about 30% of the party vote, and wound up becoming the nominee.

Nixon won in a landslide that is, on its face, the worst loss for an opposing candidate in the history of the presidency – but actually, when you dig into the details, the loss was much worse than that.

Jimmy Carter was also a good man, and an “outsider”. Governor of Georgia and a peanut farmer, he was just the sort of non-politician everyone was looking for. Revolution! I was almost old enough to vote for him, and just LOVED Carter.

While his heart was clearly in the right place, he made several critical mistakes. His economic solutions were monetarist, and he was broadsided by high inflation rates which he inherited. He controlled inflation by hiring Paul Volcker to head the Fed, who raised interest rates through the roof, attempting to burn down the village in order to save it. He accomplished both: inflation fell, but it fell because of his utter destruction of the economy.

Carter had the bad luck also of dealing somewhat ineptly with the taking of American hostages in Iran after the Iranian Revolution.

The result was another drubbing for the Democratic Party, in which the union vote went overwhelmingly, for the first time since before the Great Depression, for the Republicans.

Of course, Reagan repaid the favor by methodically busting the unions, beginning with the Professional Air Traffic Controller’s Association, when he fired them immediately after they went on strike.

Teamster head Layne Kirkland was asked by Dick Cavette (he would be like a PBS version of Anserson Cooper today), immediately after the election, how it was possible that union members voted so overwhelmingly against Carter.

Kirkland replied: “well, we told them to vote with their pocketbooks, and I guess they did.”

They came to regret that decision, of course, as Reagan and the Republicans immediately took a broadaxe to labor law, and made us into the supply side country we are today.

The word “liberal” was at this point a label that could get you arrested, and the word “progressive” hadn’t yet been applied as a palliative.

So having been seduced by this “we want an outsider who isn’t corrupt” thing twice out of the last three elections, and being so completely noncompetitive as a result that it resulted in two of the most corrupt presidents of the century being elected, along with a radical shift of the country to the right ensuing (calling yourself a liberal had become worse than calling yourself a communist). The Democratic Party realized that risk control is often more important than revolution.

Two forays into revolutionary candidacies had resulted in incredible regression, in a move of the Overton Window so far to the right that liberalism simply wasn’t in view.

One of the solutions was to introduce superdelegates as risk control.

At one time, legislators had been central to the selection of party nominees for the White House, but for the past century or so, delegates were simply local party hacks (elites) who got free trips to the convention based on their friendships with local party leaders. This situation hasn’t changed much today.

Superdelegates were to serve several purposes. In a year when a race was close but clear, the committment of the superdelegates to the winner was supposed to make the margin of victory larger, and unify the party around the victor.

Among other purposes, there was a very serious purpose which will come into play this year. Superdelegates were created to stem the sorts of movements which attempted to put out nominees which were not in the long-term interests of the party. We knew we had screwed up, and wanted to make sure it never happened again.

While those of us who supported McGovern and Carter were well-satisfied on nomination night, we all rued Nixon’s second term and our absolutely humiliating election night loss, and the Reagan Revolution, which not only stripped us of 40 years of liberal progress, but even stripped our liberal ideology of its legitimacy.

Superdelegates are supposed to be above that sort of passion, and are there to thwart the mob, if the mob should want to lead the left over the sort of cliff which results in us regressing to the right, as we had done.

You will see that invocation this year. In fact, you have already seen it. Obama was successful, as he became viable as a candidate, in poaching many of Hillary’s superdelegates. That will not happen this time. Bernie is not Obama, he was mainstream and pragmatic enough to be safe. The superdelegates will stay parked right where they are, because they know what a red sky at morning means to a sailor.

This is not about protecting elites, it is, literally, about protecting liberty against Donald Trump. Were Trump not in the race, there might be a thin chance that superdelegates would begin to defect, but with him the probable nominee, and with him looming on the 2020 horizon, that is not going to happen. It is almost mathematically impossible for Bernie to be nominated if the superdelegates stay put – and they will.

Because our cities had been bombed in 1980, and we had been driven from them, and were hearing our own lamentations, we had to decide how to rebuild. It was clear that a third call for revolution would be a mistake.

Reagan was too successful – no matter what he did or failed to do, he spent tons of money and ran up huge deficits building a 600-ship Navy, the “Peacekeeper” missile, and fielding new jets and tanks.

Fiscal stimulus was, of course, what we needed in 1976, and Reagan provided it, in 1980, in spades, blaming us for it for “failing to maintain and modernize the military”.

The absolute humiliation of having this double-talking fiscal conservative running up deficits like a drunken sailor, BLAMING US FOR IT, and achieving the largest boom in postwar history as a result, called for a strategic return to the drawing board.

Liberalism wasn’t a viable approach. Democrats realized that they would have to pull the party back to the left much more craftily, and it did that by creating the New Democrat coalition. Bill Clinton and Al Gore fashioned themselves as “socially liberal, fiscally conservative”, because it was absolutely the only way to win an election.

The only way to play is to get in the game, and the temporary rightward move of the Democratic Party was the only way to avoid its destruction.

While it’s easy to sit here in 2016 and snark about Bill’s 1992 conservatism, he and Al Gore – literally – saved both the Democratic Party and liberalism itself.

Hillary was never down with the New Democrat thing and, though she was outwardly – generally – supportive of Bill, she made it very clear that she was a liberal, and wanted nothing to do with being a New Democrat.

This was a very courageous move, and led to the right (and many Democrats) characterizing her as a loony libby loose cannon whom they would watch very closely, so that she did not corrupt Bill.

What’s important to understand is that Bill enabled the rebuilding of liberalism. But it was twelve years after Reagan was elected that he had the chance to begin doing so, and even in 2008, Obama shied away when asked if he was a liberal.

So basically, it was TWENTY-EIGHT years from the time of the disastrous 1980 Democratic Revolution that liberalism moved back inside the Overton Window.

So yeah – if you think we want another thirty years of that, you have another think coming.

We don’t care about the light of zeal in your eyes. You simply don’t understand the downside risks, and your enthusiasm doesn’t permit sobriety.

We, however, are sober as judges, because we lived through this. For you to tell us that we are “Republican Lite” or anything like that after the decades of shit we waded through just to make liberalism an acceptable word again……there just aren’t enough facepalms in the world.

Bernie is going down. If Super Tuesday doesn’t do it, the superdelegates will, and we will be deaf to your cries of “foul”.

We Hillary supporters are not against you, we WERE you, and we have been paying our penance for 36 years.

Trust us – you will thank us for this one day.

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