Bush, Obama, Ryan, and the truth about social security

There is a newsbrief in my local newspaper, one of many trite bits from the snorefest called the Republican National Convention, that Jeb Bush said President Obama should stop blaming his brother for the country’s economic woes.

All other things being equal, Jeb Bush is correct that a real leader accepts responsibility for his own policies. President Obama has cheerfully taken responsibility for his own policies – but rightly declines to take responsibility for the lingering results of President Bush’s time in office.

George W. Bush inherited from President Clinton an unprecedented federal budget surplus, and a debt of $5 trillion. He ran unprecedented budget deficits every year of his two terms, and bequeathed to President Obama a debt over $10 trillion.

George W. Bush doubled the national debt during a time of prosperity and growth, when McDonald’s was advertising “Help Wanted” and paying more than the legal minimum to get anyone to work behind the counter.

He bequeathed to President Obama a nation with its economy in freefall, looking at a very real possibility of Great Depression 2.0, with up to thirty percent unemployment.

Accordingly, it is a real accomplishment that President Obama held the unemployment rate under 9 percent, adding to the debt during a recession only about as much as Bush added to the debt during a period of prosperity.

Jeb Bush may be correct that his brother is a man of integrity, courage, and honor, at least personally. But George W. Bush did a great deal of damage to this country as President of the United States, an office for which he had no significant qualifications.

Now, to be fair, I’ll admit that President Obama’s campaign has something in common with Paul Ryan’s: they are both speaking in vague slogans, failing to be clear, precise and specific with the American people about the real state of the social security trust fund.

Paul Ryan’s social security plan is a solution in search of a problem. The REAL problem is simple to fix – although President Obama would have to admit some errors by Democrats to be direct and forthright about it. The social security trust fund is adequate for many decades to come. Social security can balance with very modest tweaking in tax rates, retirement ages, and benefits.

It is true, we can’t retire earlier, live longer, pay in less, and keep the same benefits for 20-30 years. Currently, I can draw twice the social security benefits if I work until I’m 70 as I will if I retire at 62. Rightly so.

The REAL problem is this: First, the anticipated surplus was invested in T-bills, obviously the safest investment available. But that made the trust fund part of the national debt. In 1968, congress and LBJ changed the bookkeeping, so that the revenue, surplus, and obligations became part of the federal budgets. That may have looked sensible at the time, but it meant taking advantage of the surplus now, when the obligation was much further down the road. The trust fund was no longer a segregated fund that, as President Roosevelt said, the politicians couldn’t touch, because it was self-funded. The politicians had found a way to touch it.

President Clinton understood that budget surpluses, which he generated near the end of his second term, needed to be used to pay down the national debt, particularly to fund the obligations to the social security trust fund. George W. Bush, acting like a kid in a candy store, said “Let’s give the surplus back to the people” as if the people were not $5 trillion in debt. By the time he left office, it was $10 trillion. The social security trust fund was a significant part of that debt. The rest came from the National Bank of China.

Funding social security isn’t difficult. The federal treasury simply has to repay the borrowed money as it is needed. This is not a government subsidy, it is repaying money which the government borrowed, for a time, because it was not yet needed to pay out social security benefits. The FICA taxes to cover this obligation have already been collected, and continue to be collected.

The problem, from a Republican viewpoint, is that paying the government’s lawful debts requires tax revenues, and their mantra is “tax cuts uber alles.” The government doesn’t have any other source of revenue. Its not a business. It doesn’t sell goods for a profit.

The Paul Ryan solution is to assume that government CANNOT repay the borrowed money to the trust fund, therefore, those who rely on social security, now or for their future retirement, will have to take a Greek-style haircut, because God forbid we roll back the Bush tax cuts on millionaires. Better the United States government default on its most important obligation to the American people.

Ryan and his allies deceitfully imply that meeting the obligations of social security would require massive subsidy from taxpayers in order to pay benefits. Not so. It would require repaying a loan, that the Republican leadership would prefer to default on.

President Obama’s campaign is pouring millions of dollars into fluffy TV spots that accuse Ryan and the Republicans (accurately) of trying to do away with social security and Medicare, leaving seniors in dire poverty. What President Obama’s campaign seems to be afraid of is telling the truth, the whole truth, and nothing but the truth, to the American people.

President Obama ought to over-ride the public relations gurus (as he has done before in some of his finest moments), and lay all the facts on the table. That wouldn’t make Jeb Bush’s brother look any better, but it would make President Obama look a lot better than he does right now.

State National Bank of Big Springs is not too big, and not failing: the obvious limits of regulation

The Economist, hardly a magazine for populists, good ol’ boys, or working stiffs, has reported on a bank in rural Texas that has gone to court to challenge the financial reforms mandated by what is commonly known as the Dodd-Frank Act.

Jim Purcell is chief executive of the State National Bank of Big Spring Texas, with three branches and 40 employees. It’s the kind of job where an executive has to work for a living. The bank does something that many believe would do more to reign in banks taking risks (with the entire national economy) than all the pages of regulations combined: State National keeps loans on its own books, keeping the risks and the returns local.

This means they keep their loans small – there is not a lot of margin for a big loan that goes bad – and their interest rates are a bit higher. The average figures cited by the Economist are $60,000 and 7 percent. Terms are shorter, to protect against shifts in interest rates. Small credit unions had problems in the 1970s with twenty and thirty year fixed mortgages paying less interest than what had to be offered depositors to keep money in accounts, which is what loans are made from. When you take in 6 percent on the mortgages, and have to offer depositors 10 percent, you’re well on the way to dissolution.

State National often loans for five years, with balloon payments at the end that are rolled over into new loans, at whatever the going interest rate is then. Major banks don’t do that, but major banks sell their loans to mortgage companies, to Fannie Mae and Freddie Mac, or syndicate them in the infamous “collateralized debt obligations.”

High interest rates and balloon payments are frowned upon in Dodd-Frank, for good reason, but regulators are granted wide discretion in deciding what is abusive. It seems Mr. Purcell is worried the regulators will be coming after him. The Consumer Financial Protection Bureau has just drafted a 1099 page regulation to simplify mortgages – which is an expensive proposition for a small bank with 40 employees to digest. Purcell worries that good customers will go to the big banks, while poorer customers won’t get credit at all. According to the Economist report, State National has never repossessed a home in seven years, nor cost taxpayers a penny.

This is precisely the kind of facts-on-the-ground which define where economically socialist principles must yield to politically libertarian and culturally conservative considerations. It would be a disaster to overturn the Consumer Financial Protection Bureau. There are some big nasty ruthless characters in the big banks who would steam roller mere citizens of the republic without the CFPB. But regulators need to learn to pick their battles, or their discretion needs to be tightened up a great deal. One thing we DON'T need protection from is banks that keep their own loans on their own books.

Leaving banks like State National Bank of Big Spring alone makes sense, for the same reason it makes sense not to deport teens and young adults who were brought into the USA illegally at a young age, grew up here, graduated from high school here, served in the military, completed college, obeyed our laws, and supported themselves. Jim Purcell did not put the economy into a tailspin in 2007 and 2008. He’s not “too big to fail.”

Purcell may, for all I know, have voted for George W. Bush, and if so, in my seldom humble opinion, that was a foolish thing to do. But, Dodd and Frank haven’t made that case by comparison. The obvious solution for “too big to fail” is to break up anything that IS too big to fail into smaller pieces, which can go off into the free market and do good or fail, with nobody else needing to worry except shareholders. Dodd and Frank were too cozy with the big banks for that.

They provided for a complex process which provides government backing to those banks who ARE judged “too big to fail,” which is part of why they can offer lower interest rates, because they can borrow at lower interest rates, because everyone figures, the government won’t let them fail. No risk, all the big boys are happy, taxpayers will once again pick up the tab.

Maybe a SMALL piece of Lehman Brothers should have been sold to State National Bank – although Purcell sounds like a man too smart to pay more than what the asset was worth. The big boys like to see little banks getting regulated – it makes a great poster child for no regulation at all, and, little banks can’t afford all the compliance costs, so we end up with big monopoly banks having the field all to themselves.

We need regulation of business. Real live red-blooded Populists demanded regulation, of railroads, of banks, of currency… but every time a regulatory agency was created, they pick on little guys (which is easier work), and some farmer in Ohio can’t grow wheat on his own forty acres. There’s a revolving door between regulatory agencies and regulated industries, because industries have “the best talent” and also offer great salaries and perks when an expert finishes their stint on the regulatory board.

Small businesses can be predatory too. There should be some basic rules for banks under a certain size, which should fit on about ten typewritten pages. Maybe start by combing the Ten Commandments for any sin a bank is capable of committing, then police the fine print in loan contracts. Like they say in the army, Keep It Simple Stupid. I suppose it would be too much to ask of either Democrats or Republicans to try to understand that.

Why I will vote to re-elect President Obama

It is difficult to work up any enthusiasm for the Democratic Party. Leadership nationally and in most states (notably Wisconsin) has shown itself to be a pack of spineless cowards, afraid of its own shadow, chronically unwilling to try anything new, or offer any substantive program, lest the radio talk show boogeymen might have something nasty to say about it. Fundraising boils down to “Citizens United is coming, Citizens United is coming, send us more money more money more money now now now now now.” Don’t forget that figment of Democratic paranoia, the “vast right-wing conspiracy.”

A five year old could identify easily that voters are looking for fresh new faces, bold new ideas, something different from the same old same old, maybe, just maybe, something that might make life better. But, Democratic perceived wisdom is to keep running dinosaurs for the sake of “name recognition.” There is not much different between the reasons Marco Rubio won an upset victory in Florida in 2010 and the reasons Russ Feingold won an upset victory in Wisconsin in 1992. Republicans often miss this lesson, but Democrats never learn. Victories have to be forced on an unwilling party.

Scott Walker didn’t tell Wisconsin voters in 2010 what he meant to do 2011 if he was elected governor, but he did offer himself in a vague, noncommittal sort of way as a fresh, relatively youngish face, a man who took his lunch to work in a brown paper bag, a man concerned about job creation (without offering any details about how to create jobs). The Democratic candidate, a decently competent mayor and former congressman named Tom Barrett, is the main reason Walker won the election. As politicians go, Barrett was about as stale as they come.

When offered a rare second chance to turn Walker out, Democratic Party machinery reverted to form, reducing a popular insurgency at the polls into a re-run of a losing election. Duh-uh, with the choice of Walker v. Barrett voters affirmed that they had already passed on that choice. Barrett, once again, was found wanting. Democrats have a knack for snatching defeat from the jaws of victory.

Obama offered “Hope” and “Change,” in 2008, and despite Sarah Palin’s pathetic carping, he won handily. That was four years ago. He can’t exactly run as the candidate of “change” now. He IS the incumbent. Fortunately, neither can Mitt Romney, a tired politician and soiled millionaire whose platform boils down to “I really admire the thought of ME being president. What do I have to say to win your vote?” Running on his record, he is one of the early architects of health care reform and the individual mandate!

Barack Obama was elected to take the Democratic Party by the scruff of the neck, give it a good shake, and make the party over into something creative, productive, appealing. Instead, once he had the nomination, he sank gratefully into the party as it was, like a gigantic pillow, and went to sleep. Turning to Summers and Geithner for financial advice, he single-handedly allowed Tea Party 2.0 (don’t use my money to bail out the banks) to gather steam. That energy was duly captured by the professional Republican consultants, who redirected the flow into Tea Party 3.0 (everyone hates Obama) and 4.0 (the usual crowd who believe Herbert Hoover had it right all along).

But let’s stop that line of thought for a moment. One of America’s great national past-times is trashing our president. It doesn’t matter who the president is, what their program, what their party, we draw and read cartoons lampooning everything they do, laugh at them on late night talk shows, carp about how they are doing whatever they are doing, and speculate on how their every word and action will cement or alienate the support of bald left-handed Mexican Jewish homosexual women of Chinese descent who are concerned about saving the whales, particularly those who are or are not born-again Christians, Muslim, or Hispanic.

Like most Americans, I have a laundry list of things I would have done differently if I were in President Obama’s shoes. But I’m not. I have the luxury of sitting in my own little room imagining that I have power to do things the way I think they should be done – a power the president, frankly, doesn’t have, and shouldn’t have. We have a government of limited powers, and that means the president can’t fix everything by decree, even if his decrees would always get it just right.

As presidents go, Barack Hussein Obama has done a magnificent job. He steered us away from the cliff of Great Depression 2.0, for which he gets little thanks, because we never felt the pain he saved us from. Franklin Roosevelt had the advantage that our grandparents stewed in Depression with 30 percent unemployment for three years under Hoover before Roosevelt came in. Anything Roosevelt did was bound to be a little better, and he was bound to get credit for easing pain we had felt all to sharply.

We are pretty much out of Iraq, and while George W. Bush signed the treaty that committed us to pulling out (because the elected government of Iraq turned down a longer American involvement), President Obama has stuck to his commitment that we need to be as careful getting out as we were careless going in. Nobody could get a good result out of the quagmire in Afghanistan – the only right way to have done it was to go in for six months, kick some Taliban and al Qaeda butt, then get out, and let our gallant allies of the Northern Alliance sort things out in their country. That’s water under the bridge. Obama is, step by painful step, pulling us away from our massive over-commitment, while trying not to throw away what the troops we did sent managed to accomplish at some considerable cost.

The economy is not performing in superlative fashion, but unless we live in a command economy, the president can only shape the broad outlines, and not always those. Europe is going to hell in a handbasket, rising economies all over the world can work employees cheaper than we can, and congress balks at what government does best: upgrading and installing a first-class infrastructure that allows economic innovation to flourish. Bottom line, President Obama stopped the bleeding, and the recovery is taking longer than we would have liked. Given a cooperative congress, what he’d like to do is on the right track. But he should act boldly, confidently, on a mass scale. We need high speed rail across the nation, not a hundred miles here, a hundred miles there.

I’m disappointed the president took a position on gay marriage. Frankly, its none of the business of the President of the United States. He should have had the political courage to say that, and then drop the subject. Our culture has come to expect the presidency to function as a bully pulpit, sounding off on every contentious issue of the day. It is a matter for the states, not for the feds. Period. Its not about fairness or equal protection of the laws, its about “Oh, here is an interesting human relationship, shall we take official notice of it and issue a piece of paper from the city hall, or just let people do what they want to do and not bother about it?” But, this entire subject really doesn’t matter a whole lot to me. I’m not going to vote for or against much of anybody because they are for or against gay marriage.

Abortion is also a non-issue for me. Again, it’s a matter for the states, to the extent it is the legitimate business of any level of government. No president has the power to overhaul the legal framework of the past 39 years, nor should any try. Roe v. Wade is the law of the land, well-established, a sound, conservative, jurisdictional decision, resolving who shall decide, The State, or the individual pregnant woman concerned. With that well and truly settled, in the free market place of ideas, we are all free to advocate which choice is the right choice, the best choice, the moral choice, and the constitutionally designated decider (the individual woman) will make the final call. There is nothing about this that has any place in a presidential election.

President Obama doesn’t get any credit for this, but on his watch, the flow of undocumented immigrants across our borders has gone down remarkably. The only real question is how to deal with the people who are already here. The president’s proposed policies are right on target, and this is one of the things George W. Bush got right. Democrats and Republicans have various manipulative reasons no majority has ever gotten a comprehensive reform passed, but as the head of the executive branch, Barack Obama’s enforcement priorities are just about right.

Obama has been reasonably good for the country, in perilous times, and his challenger offers nothing of any substance. Voting to re-elect President Obama is a no-brainer. Now, getting back to all the things I would have done differently if I ran the zoo…