Politics at a Glance

The View From Down Here: Politics, Media, and Generation Y: Part 2 of 3

2012-03-19T10:51:00.000-07:00

Politics has always been prone to backbiting and petty theatricalities. Why, then, does the current scene seem especially hopeless? Why has the younger generation of voters so significantly withdrawn from political involvement? We suggest that a distrust of the news media is what makes the political scene look especially bleak to young voters.

The typical miasma of political contention has spread out of Capitol Hill and into our news channels and newspapers. News channels feature political commentary more than news, and political commentary features belligerence more than political commentary.

A clear manifestation of the deficit of trust of the media was a 2009 poll done by Time magazine. Walter Cronkite held the title (since 1974) of “Most Trusted Man in America”. Cronkite was the most visible figure in the media, which at the time provided objective discourse and information to the public, and he died in 2009. In the subsequent Time poll, voters said that the most trusted news anchor in America was Comedy Central host and political satirist Jon Stewart.

The fact is that the news media is supposed to provide a momentary stay against political hostility, an unbiased source of objective information for the public, and that it is not doing this. Consequently, the public is losing their faith in the news media, and by extension the American political system itself.

News media has become another tool used by political parties to influence the opinions of the public. A particularly blatant example of this is the “Plan for Putting the GOP in the News” memo from the Nixon administration. The 15-page memo was anonymous, and has written comments on it by Nixon’s then-advisor and current Fox News President Roger Ailes.

The memo stated that television was the best medium for political persuasion because of its imminent popularity: “People are lazy. With television you just sit - watch - listen. The thinking is done for you.” The plan was to record prepackaged interviews with Republican politicians and deliver the videotapes to local news stations. Presently, critics say that Fox News has demonstrated their role as an arm of the Republican Party.

MSNBC, while on the opposite side of the political spectrum from Fox News, is similar in its audacious political stance. In a distasteful and recurring ending rant on his show, former host Keith Olbermann once shouted (his monologue was directed at then-President Bush), “This war is not about you … shut the hell up!”. Fellow host Chris Matthews also said after a 2008 Obama speech that he “felt this thrill going up my leg as Obama spoke.”

So it can be concluded that the media has become unabashedly partisan. Even the very fact that it is standard for each major newspaper to endorse a presidential candidate reflects a problem in the nature of journalism. It results in an overtly ideological news organization - the New York Times is liberal, the Wall Street Journal is conservative; the Washington Post is liberal, the Washington Times is conservative, etc.

A news staff tending to lean one way on the opinions page is typical and expected; however, the fear is that the ideological slant of the editorial pages will seep into the news coverage. The potential and underlying ‘spin’ of news stories becomes more important than the objectivity of the events being reported.

And maybe the Nixon administration’s prediction about the easy audience of television was prescient: political commentary television programs can be especially caustic and, at times, juvenile. They seem to appeal to the lowest common denominator of the public and of individuals. Keith Olbermann, Glenn Beck, Rachel Maddow, and Bill O’Reilly are all political commentators who base their rhetoric on the petty mockery of whoever disagrees with them - their arguments are negative, not positive, and clever insults take precedent over constructive criticism.

Most of the public is aware of Rush Limbaugh’s stupid and unfunny bit in which he referred to a Georgetown student as a “prostitute” and a “slut” for saying that Georgetown health insurance should cover contraception. But the name-calling does not stop there: other instances of sexist slander have been just as offensive but haven’t received as much news coverage as Limbaugh’s insult. Bill Maher, a liberal comedian and amateur political commentator on HBO, referred to Sarah Palin as “a tw-t” and “a c-nt”. Chris Matthews, MSNBC host, called Hillary Clinton “witchy,” “uppity,” and claimed that she was elected to the Senate only because her “husband messed around.”

The state of the news media today is disheartening because the system of acidity seems to be self-perpetuating. Indeed, truculence has become a prevailing rhetorical device. Keith Olbermann had a segment on his show (and a book) called “The Worst Person in the World”. Glenn Beck wrote a book in 2009 called “Arguing with Idiots: How to Stop Small Minds and Big Government”.

The media also plays up and encourages contention between politicians. Recently, Obama and John Boehner were arguing about Obama speaking to a joint session of Congress about the American Jobs Act. The back-and-forth between the two politicians, as described by Ezra Klein, was all day “dominating and delighting the political news media,” while the focus on the discussion about the employment bill was ignored.

The news media, in the decades when a news anchor was the most trusted human being in the country, served the needed purpose of sorting out the mess of political rhetoric and communicating events to the public with clarity and transparency. In the formative years of the current generation of young adults, however, the public reports to trust a political satirist more than the most prestigious news anchors.

The media itself has not only lost its ability to objectively inform the public of unbiased political events - it has become a tool for fostering and encouraging political contention. The role of the news media is not just lost - it has been perverted. As Jon Stewart said to the hosts of Crossfire, this inflammation of petty and theatrical bickering isn’t just bad journalism - it’s hurting America.

David Brooks said: “There’s a collapse in the public’s faith in American institutions. The media has done a poor job. We’ve become as insular and self-regarding as any [other institution].” It is no wonder, then, that there is a deficit of trust among the younger generations - the apparent disintegration of the integrity of our news sources is nothing less than repelling.

The View From Down Here: Politics, Media, and Generation Y: Part 1 of 3

2012-03-19T10:48:00.000-07:00

Between 1972 and 2002, youth voter turnout steadily dropped. There were slight increases in 2004 and 2006 and a significant increase in 2008, but the general trend has been a continuing decrease over the past 4 decades. Between 2006 and 2010 alone, young voter turnout dropped by almost 20%; only 21% of eligible voters 18-29 voted in the 2010 midterm election, down from 26% in 2006 and 23% in 2002.

One possible explanation of the decline in young voting is the national shift to the political right. Young voters have for the last decade tended to vote Democrat, and the failures of the Democrats during the 2010 election cycle and the resurgence of conservative sentiment may have repelled young voters from the political scene in general.

However, while allowing for the fact that the very recent shift towards conservatism may have alienated a left-leaning younger generation, we should consider the possibility that broader trends in the evolution of the American political process are causing the general apathy of younger voters.

The unregulated flow of money into American politics, for example, may be discouraging Generation Y from being politically active. Politics has come to resemble legalized bribery, where private entities systematically donate to politicians on opposing sides to ensure political back-scratching from whomever is elected. Before the 2008 election, for example, Chesapeake Energy CEO Audrey McClendon donated the maximum amount possible to both the leading Democratic candidates (Barack Obama and Hillary Clinton) and the leading Republican candidates (Rudy Giuliani, John McCain, and Mitt Romney). Incidentally, his salary in 2010 was $21 million and his company paid $0 in income taxes despite $2.8 billion in profits.

In 2010, Citizens United v. Federal Election Commission invalidated previous federal campaign law, which prohibited corporations and unions from using general funds to advocate for or against a candidate. The Citizens United decision drastically inflated private and corporate money's place in politics. In the opinion of the Court, Justice Anthony Kennedy quoted himself from McConnell v. Federal Election Commission:

"The First Amendment underwrites the freedom to experiment and to create in the realm of thought and speech. Citizens must be free to use new forms, and new forums, for the expression of ideas. The civic discourse belongs to the people, and the Government may not prescribe the means used to conduct it."

The problem with Kennedy's statement is that Citizens United did not place civic discourse in the hands of the people in any real sense. In reality, the legalization of unlimited donations to Super PACs gave more power to the extremely wealthy and no one else. The use of the free speech defense in a case which undermines the influence of individual voters made the decision all the more distasteful.

As of February 27, $130,334,342 has been raised by Super PACs supporting individual candidates. The infusion of PAC money into the 2012 Republican primary, especially, is unprecedented; this includes $36 million raised by the pro-Romney Restore Our Future, $13 million by the pro-Gingrich Winning Our Future, and $23 million raised by unaffiliated conservative PAC American Crossroads.

The track records of the Super PACs paint a disheartening picture of the Citizens United ruling and its contribution to political discourse. Restore Our Future alone has (supporting Romney) already spent $25 million on this election cycle. Of that money, however, only $800,000 has been used to fund positive ads arguing for Romney as a candidate; $7 million has been spent on negative ads against Rick Santorum and the PAC spent $17 million on ads attacking Newt Gingrich, famously credited for ruining Gingrich's chances in the Iowa and Florida primaries.

With the power of a well-funded campaign clearly seen in Romney's case, it is discouraging to know that such a campaign could be funded by a few or even one ambitious and opinionated billionaire. Unlike Restore Our Future, the Gingrich-backing and horridly named Winning Our Future has spent more on positive ads about Gingrich than negative ads about other candidates. However, the PAC itself has been almost exclusively funded by Sheldon Adleson, a Las Vegas casino mogul. Adleson has donated $17 million to Winning Our Future so far and has said that he is willing to spend as much as $100 million in support of Gingrich. Bizarrely, Adleson himself says that he is opposed to the disproportionate influence of wealthy individuals in politics: "I'm against very wealthy people attempting to or influencing elections," Adleson said, "but as long as it's doable I'm going to do it. Because I know that guys like Soros [George Soros, billionaire and supporter of liberal political organizations] have been doing it for years, if not decades."

It's true that the fundraising marathon is not limited to the Republican Party: since the Obama campaign's highly successful fundraising in 2008, it has been speculated that Obama in 2012 may raise as must as $1 billion in campaign donations and Priorities USA funds. The "Billion Dollar Campaign" prediction may be inflated, but the amount raised will still be significant. In February, for example, Obama went on a 3-day multi-state tour, hosting 8 fundraisers and netting $8.6 million; one of the fundraising dinners charged $35,800 per guest. Obama recently condoned the support of Priorities USA, the Super PAC unofficially associated with him, and members of the White House administration (though not Obama personally) will be involved with the PAC's fundraising efforts.

Legally, the Citizens United decision disallowed coordination between PACs and candidates, but it created loopholes by which the PACs can use their funds exclusively for one candidate. This essentially lets candidates collect unlimited donations while still technically adhering to campaign finance laws, which limit the amount of money candidates can receive from individual donors and private interests.

Even the founders and staffs of Super PACs are usually previous employees of the candidate the PAC supports. PACs were intended to be a voice for groups of citizens advocating for specific causes, but as a result of the Citizens United ruling they are now used as a tool to subvert the legally proscribed model of campaign funding.

The arms-race style of this monetary power struggle is an unfortunate consequence of the 2011 Citizens United decision. It is also a plausible cause of dissatisfaction among younger voters and the population at large. Colorado Senator Michael Bennet stated: "Allowing corporate influence to flow unfettered into federal campaigns will only undermine the confidence the American people have in their government." His predictions seem to have come true: according to the Pew Research Center, 65% of people believe the Citizens United ruling and the resulting influence of Super PACs are having a negative impact on the presidential campaign. This sentiment is fairly nonpartisan: the Pew results included 60% of registered Republicans, 63% of registered Democrats, and 67% of registered Independents expressing their dissatisfaction with the increasing role of private money in politics.

Under the guise of free speech, the Citizens United decision unintentionally allowed for an influx of more money into the political process, increasing the power of the wealthy few while decreasing the political influence of the general public. This process, exasperated by the politicization of the media, hyperpartisanship, and a deficit of leadership, has caused disappointment and distrust among younger voters.

Election 2012: The Other Campaigns

2012-03-19T10:45:00.002-07:00

Much has been made of the upcoming presidential election of late; the constantly changing Republican primary, President Obama's fundraisers, etc. It's easy to forget that there are also 435 House seats, 33 Senate seats, 12 Governorships, and countless state and local offices up for grabs.

Presidential campaigns are sexy -- vast, opulent, glamorous. Other campaigns are not, but they are as important if not more important in American governance and the future of our nation.

In the 2010 election cycle, Republicans made significant gains in both the House of Representatives, where they now enjoy a 242-192 majority, and the Senate, where they remain in the minority 53-47. It was an overwhelming swell of conservative sentiment and it has continued throughout the last year and a half. Republicans are poised to pick up more seats in Congress in 2012, depending somewhat on the presidential nominee.

Romney's recent electoral challenges and malapropisms aside, he is still viewed by the majority in the establishment and media as the most electable candidate. Republican leaders worry that the nomination of Rick Santorum or Newt Gingrich would have a negative impact on the Party's chances in the House and Senate elections.

That being said, the statistics are on the Republicans' side. They will almost certainly maintain control of the House of Representatives. The process of redistricting, where state legislatures -- dominated by one party or the other -- redraw congressional districts to benefit their political party, has vastly reduced the number of contested House races. This process has made violent swings in House elections -- such as the Republican surge in 2010 where the GOP picked up 63 seats -- exceedingly rare. Still, elections in districts such as the Arizona 5th, Colorado 6th, Illinois 11th, Iowa 3rd, and Maryland 6th will be closely watched.

On the Senate side, there are 33 seats up for grabs, 23 of which are Democrats or Independents who caucus with the Democrats (Connecticut and Vermont). Of the 10 contests where Republicans currently hold the seat, six are safe GOP holds, three are likely GOP holds, and only one -- Nevada -- is considered a tossup.

Republicans will most likely win all the races in which they are the incumbent, with the possible exception of Nevada, as well as Nebraska, where Democrat Ben Nelson is retiring and conservative sentiment is strong. This means that any further victories would be a net gain in Senate seats and bring Republicans closer to the majority.

Control of the Senate will thus come down to seven tossup races: Massachusetts, Missouri, Montana, Nevada, New Mexico, Virginia, and Wisconsin. Democrats must win five of these races to maintain control of the Senate, while Republicans can gain control by winning four.

There are two potential pickups for the GOP bringing their magic number to two. In Wisconsin, former Republican governor Tommy Thompson has led Congresswoman Tammy Baldwin consistently in the polls, albeit by a fairly slim margin. The same goes for Montana Republican Congressman Denny Rehberg against incumbent Democrat Jon Tester.

The polls in Massachusetts, Virginia, Missouri, and Nevada -- all tossups -- are impossible to predict.

The two most prominent of these races are Massachusetts and Virginia where four very strong and high-profile candidates are pitted against each other. The Massachusetts race will likely become one of the most expensive Senate campaigns in American history. Republican incumbent Scott Brown, who won a special election in 2009 to fill Ted Kennedy's open seat, is being challenged by Harvard Economist Elizabeth Warren. One recent poll showed Brown with a seven-point advantage while another showed Warren with a three-point advantage.

In Virginia, where Democrat Jim Webb is retiring, former Republican Governor George Allen is matched up against former Democrat Governor and DNC Chairman Tim Kaine. The proximity to Washington, DC, and the stature of the two candidates has made this campaign a high-profile cash cow. Polls have been consistently inconsistent; some have Kaine with a slight lead, some Allen.

In general, Republicans are in a solid position to maintain control of the House while picking up seats in the Senate and possibly gaining a majority there. Political campaigns are fickle, and much may and probably will change between now and then. But the hope in Republican circles remains.

The Power of an Idea and the Perils of Camelot

2012-02-20T19:48:00.000-08:00

“All men are created equal.” As the tip of Thomas Jefferson’s quill lifted from the parchment of the Declaration of Independence, the idea of equality was forever sewn into the fabric of the American experiment, espoused in a founding document for the first time in world history. It was unique in its simplicity, radical in its uniqueness.

Centuries later, the idea of equality has not been fully achieved. Racial tensions persist, gender discrimination continues, and anti-gay policies progress. The 2008 election of Barack Obama, however, was a turning point in American history, an opportunity for the bigoted bias of generations past to be forever doomed to the ash heap of history.

Obama is the quintessential American success story. The ability of an African-American man, born in Hawaii and raised by a single parent, to achieve educational, financial and political success is a testament to Jefferson’s foundational idea of equality, and to how far we’ve come as a nation. Obama embodies the American dream.

As a presidential candidate in 2008, he campaigned as the “post-racial” and “post-partisan” candidate. He was going to bring a new level of civility and equity to both the political process and the American system of governance. As then-Senator Obama stated in his 2006 book The Audacity of Hope, “What struck me [while running for the US Senate] was how much of what they believed seemed to hold constant across race, region, religion, and class. I told them that government couldn’t solve all their problems. But with a slight change in priorities we could make sure every child had a decent shot at life and meet the challenges we faced as a nation.”

It is said in politics that you campaign in poetry and govern in prose. In Obama’s case, the poetry of the campaign—the promises of post-partisanship and the ideas of hope and change—attempted to implement Jefferson’s fundamental idea of equality. But they were, unfortunately, misguided. In many ways, the idea that most characterizes President Obama’s rise to power comes not from the founding of the American Republic, but rather the founding of an American dynasty.

After the assassination of John F. Kennedy in 1963, his wife Jackie gave an interview in which she referred to the Kennedy Presidency as an “American Camelot,” a time of progress and peace, honor and valor. The term “American Camelot” has come to signify the Kennedy dynasty as a whole: the most powerful, picturesque, and influential family in American history. But like the legends of old, where the principles and values of the Round Table were constantly subverted by the humanity of its occupants, the American Camelot also attempted to cloak the mortal failings of the Kennedys in a veil of dynastic tranquility and a manufactured image of serenity.

The Kennedys are great Americans who have served their country for generations and continue to do so, but they often depended on their image to maintain their reputation in spite of their personal failings. Barack Obama’s presidential campaign was a testament to the success of image politics. He was portrayed as the candidate of all people, uninhibited by the backwards tensions of race, gender, and even party. But the prose of his governance has been lacking in true substance, lacking in the practical consummation of Jefferson’s idea of equality.

While Obama is not the socialist his critics rail against, his political philosophy is centered in the belief that the government can mandate equality, success, and social progress. He emphasizes the role the government plays in stimulating the economy, lifting the less fortunate out of poverty, and saving the environment. In doing so, he has demonized corporations and the rich while idolizing community organizations and unions.

The Camelot-like image of hope and change has given way to a statist philosophy of governance. His intentions are valiant but the increase in government spending, bureaucracy, and unnecessary regulation actually hinder the idea of equality espoused in the Declaration of Independence. As Jefferson stated, “A wise and frugal government, which shall restrain men from injuring one another, which shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government.”

In reality, no presidency more clearly demonstrated true equality than that of Ronald Reagan. Reagan should not be deified or idolized like he is by many on the right. He and his presidency were flawed – Iran-Contra and the response to the AIDS crisis come to mind. But his vision of the American dream and the power of the individual transformed America from the malaise-ridden stagnation of the Carter years to the enterprising boom of the 80s and 90s.

The equality that Jefferson envisioned is only achieved when the power of the individual is unleashed and the entrepreneurial nature of the American people unhindered. As Reagan stated, “Only when the human spirit is allowed to invent and create, only when individuals are given a personal stake in deciding economic policies and benefiting from their success – only then can societies remain economically alive, dynamic, prosperous, progressive and free.” To that I would add, only then is true equality of opportunity achieved.

We as Americans must be wary of the Camelot-esqueFinancial Times, the budget “stabilizes our debt at 76 percent of GDP – ‘roughly double historic levels.’” This timid incrementalism is unacceptable.

But the greater failure is the imposed stagnation of the individual spirit. As the Obama Administration imposes their liberal ideology, the power of individual entrepreneurship is squelched and the opportunity for equality hindered.

In 1984, Reagan said “Recognizing the equality of all men and women, we are willing and able to lift the weak, cradle those who hurt, and nurture the bonds that tie us together as one nation under God.” The Reagan Revolution transformed America as we know it. To solve the daunting challenges facing us we need another revolution of equal or greater strength and boldness. But it should be a revolution based on the idea of equality and individual enterprise rather than the cursory image of Camelot.

Thoughts From CPAC

2012-02-20T19:45:00.000-08:00

The crowd’s reaction was mixed. Boos and angry shouts of “No!” clashed with cheers of vindication as Mitt Romney was declared the winner of the annual Conservative Political Action Conference Straw Poll. This three-day conference—the largest and most famous of its kind, with over 10,000 participants—is an opportunity for conservatives to join together in small-government, traditional values brotherhood, but is it good for the conservative movement, and is it good for the country?

The mixed reaction to Romney’s straw poll victory was indicative of the nature of today’s conservatism. Based on his policy positions, he would probably be the most conservative presidential nominee in recent history. He is pro-life, pro-second amendment, pro-traditional marriage, strong on immigration, strong on defense, espouses austerity, the Ryan Budget, and the repeal of Obamacare and Dodd-Frank. And yet, he is inadequate for some conservatives.

The conference was chock-full of varying personalities, but not varying opinions – I’ll get to that later. It involved journalists, like Jonah Goldberg and Cal Thomas, giving insightful analysis and thoughtful recommendations for future action. It included former political figures, like Herman Cain and Sarah Palin, engaging in unabashed self-promotion in an effort to maintain their grip of some sliver of the conservative population and to sell more books. It also involved current political figures, like Senators Rand Paul and Jon Cornyn, Virginia Governor Bob McDonnell and Attorney General Ken Cuccinelli, clearly and passionately espousing the principles of conservatism in a way that reflected positively on themselves, their states and their cause.

The general drift of the proceedings, however, was an unflinching, unequivocal, and stunningly tactless bombardment of President Obama and the policies of the last three years. Obama was described as a radical, a socialist, a failed president, hater of the rich, hater of the poor, and – my favorite – an argument in favor of contraception. Speakers and participants alike railed against welfare (which breeds dependency), Social Security and Medicare (which are bankrupting the country), gun-control (the essence of liberal overreach), and gay marriage (disgusting). In some of these areas their points are valid, but the level of anger and, at times, heartlessness with which the participants viewed these issues is a recipe for electoral disaster.

Which brings us back to Romney. For all his conservative bona fides, many conservatives don’t believe he’s gone far enough, or is passionate enough. Foster Friess, a wealthy investment banker and Santorum supporter, introduced the former Pennsylvania Senator and began with a joke: “So a Liberal, a Moderate and a Conservative walk into a bar and the bartender says, ‘Hey Mitt.’” In his remarks, Santorum argued that Romney disqualified himself from the Republican primary race by passing and continuing to defend Romneycare, a Massachusetts health care reform bill with many similarities to Obamacare. Gingrich called Romney “timid” and “moderate.” Without using his name, Texas Governor Rick Perry spelled out the conservative dissolution: “We do the American people no great service if we replace the current embodiment of Big Government with a lukewarm version of the same.”

Current conservatism views Mitt Romney, whose own policies would put Ronald Reagan and William F. Buckley’s to shame, as a “lukewarm version” of Big Government ideology. Is this viewpoint good for the conservative cause or good for the country? I don’t think so. And this attitude applies to my larger point about CPAC itself.

As I walked through the halls and the lobbies of the DC Marriott, two things struck me. First, I was amazed by the overwhelming sense of otherness and isolation that hovered over the hotel like a heavy fog. The three-day conference progressed completely devoid of outside influence and alternative opinion. It was as if the conservative movement was acting out their own version of Gilligan’s Island, stranded on the sandy beaches of small-government philosophy, bolstered in their conservative camaraderie, and surrounded by the seas of liberalism and the circling sharks of the Obama Administration. They must act in unison if they want to survive. Social Psychologist Jonathan Haidt describes the phenomenon as a Matrix-like “consensual hallucination,” an unwavering, psychological adherence to their image of the political world. But the lack of disagreement and dissent will only weaken the conservative movement and deter its success.

Writers such as David Brooks, who has written about the political skill and admirable leadership qualities of President Obama, or Andrew Sullivan, the gay conservative blogger who opposed the war in Iraq and the torture of detainees, are not welcome at CPAC. Politicians such as John McCain and Lindsey Graham, who have been willing to compromise and work across the aisle, are also not welcome in more conservative circles. These figures are viewed as disloyal to the cause of conservatism. But as Edward R. Murrow stated, “We must not confuse dissent with disloyalty. When the loyal opposition dies, I think the soul of America dies with it.” In this case, the death of loyal opposition within the conservative movement is a precursor to the death of conservatism as we know it.

The second thing that struck me is a result of the first. Without dissent and debate, the participants of CPAC carry the cross of conservatism with a biblical surety and unwavering passion. The result is a myopic vision of America and its political landscape. Participants immediately dismiss welfare and deem its recipients lazy, manipulative malcontents without even considering the plethora of factors (low education spending, lack of law enforcement, poor health care and health education) which deprive millions of the opportunities we enjoy. They dismiss any type of gun-control as a massive overreach of statist government without considering the thousands who die every year from gun deaths. They dismiss what they see as the homosexual perversion of marriage without even considering the implications of personhood for the LGBT community.

In many ways, their positions are fundamentally sound. The welfare system is flawed and does, in some cases, breed dependence. Universal gun-control does infringe on the rights of those who hold their second-amendment rights dear to their heart. Gay marriage may negatively affect the fundamental values of our society. But the way the conservative movement carries itself, most clearly portrayed in the three-day proceedings of CPAC, lacks tact, nuance and the ability to compromise – all valued skills in politics and in the basic art of persuasion.

Mitt Romney may not be the most conservative candidate in the Republican field. He may lack a certain fluency in conservatism (most likely the result of being a result-focused pragmatist for much of his life in the private sector). But a Republican Party that decides Romney is not a conservative at all is a Republican Party doomed to failure. And a conservative movement that lacks nuance and rigorous internal debate does nothing but harm itself and the country at large.

War and the American Ideal

2012-01-28T10:48:00.000-08:00

A few weeks ago, a video surfaced with four American soldiers urinating on the bodies of two Taliban soldiers in Afghanistan. One of the soldiers jokes, “Golden, like a shower” and another look down at the bodies and wishes them a “good day.” All of this was captured on video and, as with almost everything captured on video these days, uploaded to YouTube.

The response from the powers that be was swift and damning. Secretary of Defense Leon Panetta called the act deplorable—the White House agreed—and Arizona Senator John McCain, a former POW in Vietnam, said that it tarnished the image and reputation of the Marine Corps.

Nancy Sherman, a professor of Philosophy at Georgetown University and the first distinguished chair in ethics at the U.S. Naval Academy, stated that “the act is a violation of professional military conduct and the fundamental moral requirement in war of showing dignity and respect to the dead.”

Furthermore, the act of urinating on a corpse is not sadistic or driven by anger—feelings that would be understandable, though acting on them still unacceptable—it is an act of degradation and shame. Particularly in an environment of religious tension between the Middle East and the West, an act such as this is pure stupidity and has both strategic and philosophical implications.

Earlier this week, a member of the Afghan National Army (our allies) killed four French soldiers. The soldier stated that he did it because of the video of the American soldiers degrading the body of his countryman. Reports have also surfaced that the Taliban and Al Qaeda have begun using this video as a recruitment tool. These are the real implications of the stupidity shown in the video. Lives have been lost, will continue to be lost and the enemy will become stronger because of it.

But there is a greater issue at stake: the moral standing of the American Republic and its example to the world. Some have come out in recent weeks to criticize the Obama Administration’s response to the conflict. Florida Congressman Allen West, a former Army Lieutenant Colonel, said “the Marines were wrong…As for everyone else, unless you have been shot at by the Taliban, shut your mouth, war is hell.” Texas Governor Rick Perry said the desecration was a “stupid mistake,” called the criticism “over the top,” and claimed it reflected the Obama Administration’s “disdain for the military.”

California Congressman Duncan Hunter also urged that the marines “not be used for the purpose of making a statement to our partners in the region” meaning the soldiers shouldn’t be punished harshly simply to mend relationships with Afghan President Hamid Karsai or the Taliban during efforts at peace talks. The most stunning of defenses I’ve heard came from a woman on talk radio who defended the marines by saying “they’re just kids.”

This incident is not simply a mistake, a moment of unsound judgment. Marines are some of the most highly trained soldiers in the world, but more importantly all U.S. soldiers understand that they are not simply “killing machines” but are rather the most numerous and visible representatives of the ideals of America in the world.

Congressman West is right. War is hell. He went on to compare the incident to the American soldiers dragged through the streets of Mogadishu (made famous by the movie Black Hawk Down), and those tortured, beheaded and hanged in Iraq and Afghanistan. War is hell, but what sets the United States apart is the way that it carries itself in the world, represented by the very soldiers who have been trained to kill – an interesting paradox.

Whether in China, Burma, Syria or Rwanda, the United States has always opposed human rights violations and fought tirelessly — using diplomatic and military means — to defeat these abuses. That is what we represent. Those marines were not only degrading the bodies of their enemies, they were degrading the very ideals they are fighting to protect and defend.

Alexis de Tocqueville once said “Two things in America are astonishing: the changeableness of most human behavior and the strange stability of certain principles. Men are constantly on the move, but the spirit of humanity seems almost unmoved.” On that day, the spirit of our humanity was moved, and for that moment we shrunk in our stature and example.

The Nature of Responsibility

2012-01-28T10:43:00.001-08:00

In the January 2012 edition of Vanity Fair, Christopher Hitchens—possibly the greatest intellectual of the last 30 years—addressed the issue of death from the perspective of one currently experiencing it (he was recently diagnosed with esophageal cancer and died on December 15^th). He stated that there were only two things keeping him from fatalism and resignation: “a wife who would not hear of me talking in this boring and useless way, and various friends who also spoke freely.” Not even Hitchens—the great atheist, wordsmith, luminary—was able to exist without partaking in society and relationship.

During a conversation I had with him last semester, President of the Washington Institute and author of The Fabric of Faithfulness Dr. Steven Garber quoted Vaclav Havel—the recently diseased President of Czechoslovakia—who said that “the secret of man is the secret of his responsibility.” I began thinking about the elusive nature of responsibility. In many ways, it seems as though its meaning has remained a mystery in our culture--or, more nefariously, been purposefully subverted to emphasize the supposed victory of reason over emotion in the Modern and Postmodern ages.

At the core of the idea of responsibility—truly at the core of humanity itself—is the importance of understanding our place within society and relationships. We, as a culture, have a tendency to equate responsibility with independence. We see responsibility as living on our own, buying a car, paying a mortgage, etc. But true responsibility necessitates actively engaging with both our emotions and the values that our emotions articulate. As New York Times columnist David Brooks discussed in his book The Social Animal, “Your unconscious, that inner extrovert, wants you to reach outward and connect…your unconscious wants to entangle you in the thick web of relations that are the essence of human flourishing.”

Brooks underscores the fact that the dichotomy of reason and emotion—particularly the supposed victory of reason over emotion—is a false one. We view emotion as an untamed beast, unable to be controlled or even understood. But Brooks states that “Reason and emotion are not separate and opposed. Reason is nestled upon emotion and dependent upon it. Emotion assigns value to things, and reason can only make choices on the basis of those valuations. The human mind can be pragmatic because deep down it is romantic.” Far from being outside the realm of reason or understanding, emotion is the very foundation of reason, organizing the principles and value structures of our lives like an architect drawing blueprints for a building. Our emotions, which guide our subconscious, seek to be in relationships. We are, as Aristotle called us, social animals.

Even the ancients understood this concept. Aristotle, writing in the 3^rd century BC, also said that “Anyone who either cannot lead the common life or is so self-sufficient as not to need to, and therefore does not partake of society, is either a beast or a god.” In the ancient poem Inferno, Dante and Virgil traverse the levels of hell passing through those which housed souls guilty of the sins of lust, gluttony, murder, theft, and falsehood. At the final level resides sinners guilty of disloyalty to kin, country, guests, and lords. To understand why Dante reserves the final level of hell (where Satan also resides) with the most gruesome of punishments, we must realize that Aristotle’s writings were, in many ways, the foundation of Dante’s thought. Disloyalty is the worst of all sins in Dante’s conception because it is the destruction of relationships which are at the core of humanity. It is, in essence, a perversion of humanity itself.

Havel, reflecting on his time as a playwright, said “What is important is that it is far harder to store a play away in your desk drawer than it is poetry or prose. Once written, a play is only half done, and it is never complete and itself until it has been performed in a theatre.” The parallels to Brooks’ work are enlightening. Writing a play—like living an independent, solitary life—is a wholly irrational, unfinished, and unfulfilling exercise. Only in its engagement with society at large, the carrying out of its ideas in a physical and social manner, is theater—and life—consummated. In this principle we find the true nature of responsibility.

True responsibility is understanding the benefit we can receive from and the good we can infuse into our community—whether it be a family, a city, or a church—and doing the work necessary to maintain and build up that community. It is understanding the foundational role of the emotions and letting them guide our path and order our value structures. The micro and macro problems we face as a society and as a country are complex and divergent, but at the core of many is a lost understanding of responsibility. The key to future solutions may lie in the resurgence of this understanding.

The secret of man is the secret of his responsibility.

Jon Huntsman is the Most Electable Republican

2012-01-04T09:45:00.000-08:00

For the last three years, the Republican Party has been engaged in a struggle to define itself. They have seen the backlash resulting from the failed policies of the Obama Administration and realized that this is an opportunity to reassert the small government, free market, low tax pillars of Conservatism. We have seen the emergence of the Tea Party, the sweeping midterm election of 2010 and the increasingly abysmal daily tracking polls for President Obama.

As the Republican primary commenced, this struggle played out in the constant tug and pull between a resurgent Republican base and the party establishment. It is, as the media has portrayed it, a struggle between philosophical catharsis (Newt Gingrich) and electability (Mitt Romney). But that dichotomy is deeply flawed.

Romney has been seen since day one as the establishment candidate with a broader appeal to independents and thus better general election chances. The reality of the situation, however, is that Romney’s persona does not appeal to the country at large. In a year when the electorate loathes the political process, and the politicians who guide it, Romney’s image of politician through and through will be viewed with skepticism, at the very least.

His electability is in question for another reason: the Obama Administration, which is inept at governing but unparalleled at campaigning, knows his weaknesses and has a strategy in place to defeat him. They will—in fact they have already started to—paint him as an unattached, job-killing flip-flopper with no moral center, willing to say or do anything and everything to get elected. It is hard to imagine a more powerful strategy for a general electorate which values consistency and boldness over almost anything else.

Which brings us to Newt Gingrich. His recent rise in the polls is the result of his constant, vocal, and sometimes outlandish criticism of Barrack Obama, a cathartic experience for Republican voters who are angry and passionate about defeating him in 2012. But Conservatives, Liberals, and the Obama Administration itself realize the ease with which they would cruise to victory were Gingrich nominated by the Republican Party, for two reasons.

First, his bombastic personality, which is a positive in the primary election, would become a negative in the general election and the chances of him saying something too outlandish would increase day by day. His past statements, such as when he stated that “people like me are what stand between us and Auschwitz” or when he described himself as a “definer of civilization” paint a picture of a Nixonian candidate, one with bold ideas and political prowess but hindered by substantial personal flaws.

Second, Gingrich is not the bastion of Conservatism that the Tea Party thinks he is. The flip-flops on issues such as climate change, the individual mandate, and Libya are well known. But more importantly, Gingrich has shown an utter disregard for some Conservative principles. Last week, Gingrich committed Conservative heresy by responding to Mitt Romney’s statement asking the speaker to return the $1.6 million he received from Freddie Mac with his own challenge to return the money Romney made “bankrupting companies and laying employees off” at Bain Capital. To equate crony capitalism and influence peddling with the market realities of capitalism itself is to completely misrepresent Conservatism and its principles, something voters will realize under greater scrutiny.

If the Obama Administration is content with facing Mitt Romney in the general election, they are licking their chops at the potential nomination of Newt Gingrich. But the dichotomy of Gingrich and Romney is flawed because it doesn’t include the candidate who is the most electable and who the Obama Campaign is most worried about, Jon Huntsman.

As Conservative columnists George Will and Erick Erickson pointed out, Governor Huntsman has the most Conservative record of any of the Republican candidates. The Wall Street Journal and most recently The Tax Foundation, a Washington based Think Tank, endorsed the Governor’s tax and jobs proposal as bold and transformative. The New York Times ranked him as the most likely Republican candidate to defeat Barrack Obama. He appeals to independents because of his consistent record, his foreign policy experience and his nuanced demeanor.

The true dichotomy is not between catharsis and supposed electability; it is between candidates seeking political absolution through shallow verbal barrages and a candidate with the leadership credentials and bold proposals necessary to win. Put simply, it is true electability. Jon Huntsman is truly electable and he is the right leader to set the United States on the path toward future sustainability.

Economic Domino Theory in the Eurozone, Part 2

2011-12-07T06:47:00.000-08:00

On Wednesday, the Dow Jones Industrial Average surged 490 points, almost 5% in response to the announcement by the Federal Reserve that it was initiating a secondary capital injection in the European market. This was the largest one-day jump since March of 2009, but was it enough to salvage the economic quagmire that is the European Union?

As the European dominoes have continued to fall—due mainly to the inability of those countries to maintain a sustainable level of debt—financial institutions across the world have developed strategies to limit the crisis and prevent the spread of this fiscal cancer. With the interrelated nature of the worldwide financial system, this is not just a European problem; it is a problem for East Asia, the Middle East, and it is a problem for the United States.

The first step for the heads of the US financial system was to assess the exposure of American banks to European debt. Last Wednesday, Ben Bernanke, Chairman of the Federal Reserve, announced that US banks would undergo a “stress test” over the course of the next few weeks. This is, in essence, an effort to analyze the books of the six dominant financial institutions and determine the amount of European debt present.

These institutions—Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley—currently hold approximately 66% of the US GDP, or about $9 trillion. Most of them have engaged in complex transactions known as foreign exchange swaps, which are defined as “an agreement to exchange stipulated amounts of one currency for another currency at one or more future dates.”

These transactions allow for more flexibility in financial dealings and serve as a hedge against future alterations in the exchange rate, but they also increase exposure to international debt. A source at the Treasury Department revealed that initial estimates of US exposure range from $1-$2 trillion and could reach as high as $3.5 trillion; the most vulnerable are Bank of America, JPMorgan Chase, Citigroup, and Goldman Sachs.

In terms of American institutions, the only solution available to them is to play the confidence game. On Tuesday, in response to this stress test, Standard & Poor’s, one of three ratings agencies on Wall Street, downgraded the credit rating on all of these banks and many of their European counterparts. As they seek to maintain some level of confidence, one strategy has been to constantly move money throughout the market as a means of reducing the actual debt and European exposure present on their balance sheets. The financial confidence game is a fickle beast.

While the American banks seek to maintain confidence, the Treasury Department and Federal Reserve, in tandem with their worldwide counterparts, have sought to address the crisis at its core. European countries are being crushed under a mountain of debt and they lack the necessary liquidity to write-down their debt; as a result, their credit markets are practically frozen stalling any economic activity.

The lynchpin of European economic activity is France—specifically the French banks. All the major European nations—particularly Germany—and the United States have large sums of money in these institutions. Moody’s, another of the three ratings agencies, originally announced that they would be downgrading both the French banks and France itself today, which would have led to the nightmare scenario.

A simultaneous downgrade of France and its financial sector would result in a large-scale run on the banks in which major financial institutions, such as American and European banks, as well as countries themselves, such as Germany and the United States, would attempt to withdraw their money at the same time. Since the current financial system is built on leverage and no bank in the world has enough liquid capital to return the money of all of their investors, the entire system could potentially collapse.

On Wednesday, the Federal Reserve in collusion with the European Central Bank (ECB), the Bank of England, and the central banks of Canada, Japan, and Switzerland announced an immediate process of quantitative easing. Since Europe as a whole, and France in particular, needs to increase liquidity to write-down their debt, this process would involve an infusion of capital in the market.

According to the source at the Treasury, since the Federal Reserve cannot legally lend directly to France, they have lent money at a 0% interest rate to the European Central Bank which will then loan to the International Monetary Fund which will loan to France. This capital injection will allow France to write-down a substantial percentage of their debt and potentially stave off a cataclysmic financial event.

Moody’s announced on Wednesday that it will hold off on downgrading the credit rating of France and its banks for 10 days, meaning the complete process of loan and write-down must take place over that period. The capital injection was the only legal action the Federal Reserve could take. It is now up to the European Union nations to handle this fiscal crisis in a responsible way, but in many ways the damage may already be done.

There is a perspective broader than economics in which the Eurozone crisis may have dangerously destabilized the worldwide geopolitical balance. The European Union has been brought to the precipice of financial ruin and is still hanging by a thread. In many ways, it has always acted as a constraint on the power of individual nations within it and surrounding it.

The destabilization of the EU has created an excuse for Germany to possibly drop the euro and leave the Union altogether. It has, by default, strengthened the geopolitical positions of nations like Russia and China and created a relationship of dependence, evident by the fact that exports from China to Europe have dropped precipitously over the last month. Russia’s increased strength has the potential to simultaneously result in further destabilization in the Middle East as their influence in countries north of Afghanistan grows.

None of these scenarios are in America’s interest. The geopolitical balance in the world over the last decade has been tense, but it has been a balance nonetheless. The US government and the US financial institutions have done all they can to maintain confidence and liquidity in the worldwide financial markets. Now it is up to the Eurozone to ultimately fix the problem they have created.

Economic Domino Theory in the Eurozone, Part 1

2011-12-07T06:45:00.000-08:00

In 1992, the thirteen nations of the European Communities met in Maastricht, Netherlands to sign the Maastricht Treaty. By doing so, these nations, which included Italy, France, West Germany, the United Kingdom, and Greece, bound themselves in an association known as the European Union, now comprised of 17 nations. In the process they created a unified currency—the euro—which forever linked the fortunes of these economies, whether good or bad, in an essentially unbreakable chain.

Douglas J. Elliot, a Senior Fellow at the Brookings Institute, wrote on CNN Money that “the road into the Eurozone ran only one way.” What he meant was that the Eurozone countries made it almost impossible to dump the euro without leaving the European Union; there is no mechanism in place for such an act. The fear was that if a country like Greece were to dump the euro as its currency, they would set a weaker exchange rate leading to a run on their banks and a domino effect rushing through the Eurozone.

At this moment, however, the very foundations of the European Union are buckling under the weight of debt and instability. The governments of Greece and Italy have both been ousted after promising substantial austerity packages. The euro itself is in danger of folding and the nations of the Eurozone watch as each domino continues to fall. How bad is it? Simon Wolfson, the CEO of European retailer NEXT is offering a $400,000 prize for a plan to break up the euro peacefully.

The root cause of this crisis is essentially government debt, a prescient warning for American technocrats. The Maastricht Treaty mandated that annual government deficits not exceed 3% of GDP while government debt not exceed 60% of GDP. Most European nations, however—particularly Greece and Italy—used complex currency and credit derivatives to mask the realities of their debt situation.

Currently all the major Eurozone nations have debt to GDP ratios over 60%: the United Kingdom (77.8%), Germany (75.7%), France (83%), Italy (118.9%), and Greece (140.2%). These staggering ratios—particularly those of Italy and Greece—have strained the relationships between banks and clients, investors and business, government and business, and government and citizens. As a quick aside (and a story for another day), the American debt to GDP ratio is 99.6% for the year and ironically crossed the 100% plateau on Halloween according to projections by the International Monetary Fund.

German Chancellor Angela Merkel and French President Nicolas Sarkozy have led the efforts by the more structurally sound European nations to maintain stability and find a long-term solution. But experts worry that they are playing a losing hand. The fiscal monstrosity that is the Greek and Italian bond market, combined with their astounding levels of government debt, has led some to fear the “doomsday scenario.”

On Tuesday, the yield on 10-year Italian government bonds reached 7.039%, a rate at which economists believe the refinancing of Italy’s debt becomes unsustainable. Were Italy and Greece unable to refinance their debt and default, economists and heads of state alike worry that the domino effect will spread through Europe and beyond—quickly. Spain and Portugal would fall, followed by Ireland, and eventually the cancer would reach France.

While France may not be a dominant geo-political power, they do dominate the banking sector of the Eurozone. Germany, the most reliable of the bunch, houses almost all of its capital in French banks. France also holds approximately $1 trillion in American money. Meanwhile, the French banks have overleveraged themselves in the unpredictable Eurozone market resulting in France’s rocky fiscal infrastructure and dim economic outlook. As rating agency Standard & Poor’s stated in downgrading the French banking sector, “we see weaker economic prospects for Europe, including the peripheral countries to which some French banks are significantly exposed.”

Eurozone leaders have taken action. At a summit in October, they decided to write down—essentially reduce in value—the Greek debt held by the private sector by 50%. Meanwhile, Lucas Papademos has replaced George Papandreo as interim Prime Minister of Greece and promised a strong effort to pass a significant austerity package.

Last week in Italy, the Parliament voted to approve an austerity package—which includes cutting 300,000 public sector jobs, increasing the retirement age for government benefits, simplifying the tax code, creating incentives for venture capital investment, and reintroducing the property tax—paving the way for Silvio Berlusconi to resign as Prime Minister.

But there are flaws to these measures. The write down of Greek debt makes very idyllic assumptions. An article in The Economist after the deal was struck commented that the Eurozone’s main rescue fund, the European Financial Stability Facility, “does not have enough money to withstand a run on Italy and Spain” while other sources of liquidity—Germany and the central bank—have ruled out further bailouts. The Italian austerity package is vague—such as when it outlaws deficit spending “except in the case of exceptional events” and fails to define “exceptional events”—and the country itself currently lacks a government.

As the dominos continue to fall, the worry shifts from the collapse of the European bond market and banking sector to the impact on American markets. The universality of the worldwide financial system means that the economic domino effect does not stop at the water’s edge.

America, the Case For Hope

2011-11-13T12:27:00.000-08:00

Writings about our country have long been dominated by benign, soporific eulogies to the greatness of America past. We are the country that evicted the domineering, imperialistic behemoth that was the British Empire. We successfully created a representative democracy outlined in the redoubtable words of the longest lasting constitution in world history. We settled the west, fought for equality for all, defeated totalitarianism in Europe and Asia, went to the moon, and invented the microchip, the internet and a cure for polio. But…

The malaise of the last few years has set in so that every comment about the greatness of America past ends with a “but”. But now we are in a lost decade. But now capitalism has failed and our economy cannot recover. But now our political system is defunct, never to regain its ideal form. But our people have lost their moral core.

These are all valid concerns and valid challenges. Our economic recession, resulting from the financial crisis of 2008 which illuminated serious flaws in the financial system and its inter-related relationship with government, has now spanned three years. A lost decade like Japan’s 1990s is not out of the question. The hyper-polarized nature of our political system, which culminated in the debt ceiling debacle this summer, has done harm to our external political reputation and our internal political confidence.

Americans, however, are a people of resilience. As political philosopher Alexis de Tocqueville commented, “the greatness of America lies not in being more enlightened than any other nation, but rather in her ability to repair her faults.” In our history, we faced the challenges of economic disaster and emerged stronger than before. We confronted atrocities abroad and emerged victorious. We foresaw the changing landscape of the turn of the millennium and developed the greatest technologies in the world. And we can do it again.

On the great seal of the United States are three Latin phrases. Novus Ordo Seclorum, translated as “a new order for the ages,” represents the unique nature of the American experiment. This experiment combined the political philosophies of ancient Greece and Rome, a Judeo-Christian legal foundation, and the practicalities of the British Parliamentary system into a government never before seen in world history.

Annuit Coeptis, translated as “providence, [or God], favors our undertaking,” represents the spiritual foundation of the American experiment. We are an inherently spiritual people, bolstered in our spiritual foundation by the success God has shined upon us in our history. In some ways, we have lost our spiritual fervor, but the moral infrastructure is still in place, ingrained in every aspect of public life. Tocqueville stated that “Americans combine the notions of religion and liberty so intimately in their minds that it is impossible to make them conceive of one without the other.” It may not always seem to be the case but I still honestly believe that it is.

The third phrase on the great seal is E Pluribus Unum, translated as “out of many, one.” The diverse nature of the American population has always been a sign of the great success of the American experiment. Greater yet, however, is the fact that through that diversity has come one voice, one rallying cry for the values on which this nation was founded: freedom, liberty, unity, suffrage, morality, leadership. These values have been challenged—as they were during the Civil War—but the strength of American convictions has always been sustained.

As the challenges of the Civil War commenced, the dome of the US Capitol, the great exclamation point on the temple of American liberty and deliberation, sat unfinished. With the future of the Union unknown, President Lincoln ordered the dome to be finished, stating “if people see the Capitol going on, it is a sign we intend the Union shall go on.”

The future of our American Union may be unknown, but as Lincoln ordered in the 1860s, we should continue to seek and strive for a “more perfect Union.” Discussions of America should no longer be benign, soporific or elegiac. If history has revealed anything, it is that there is no challenge we cannot face, no conflict we cannot overcome, no task we cannot complete.

The Great Seal of the United States cannot and will not be broken. We are one nation born from many peoples, religions, ideologies, and cultures. Our diversity makes us stronger and it will make our successes greater. The success and consistency of our history changed the world forever. In the next few years, we can and we will do it again. It may not yet be morning in America, but the dawn is not far off.

Jobs, Taxes, and the Republican Primary

2011-10-29T17:07:00.000-07:00

Economic factors are always paramount in presidential elections. But in a year when the unemployment rates remains above 9% and the Eurozone debt crisis looms, the importance expands exponentially. With the first Republican primary less than two months away, each of the potential candidates has outlined a tax and jobs plan that will, according to them, bring the United States out of this recession and restore it to its once great position as the only viable superpower.

Mitt Romney, the unflappably stagnant former governor of Massachusetts, introduced his 49 point jobs plan last month in Las Vegas. It entails cutting corporate tax rates from 35% to 25%, eliminating the estate tax, and extending the so-called Bush Tax Cuts. He also recommends reducing the regulatory burdens on business by repealing Obamacare and Dodd-Frank (the financial reform bill) and expanding drilling in areas such as the Gulf Coast, the Plain States and Alaska.

Texas Governor Rick Perry, the unflappably flappable candidate, introduced his tax and jobs proposals in recent weeks. His jobs plan focuses mainly on increased energy production in oil and natural gas which he states will “unleash 1.2 million American jobs through safe and aggressive energy exploration at home.” His tax plan proposes creating an opt-in flat tax, meaning those who choose to do so, can have their taxes reduced to a flat rate.

Former Godfather Pizza Executive Herman Cain, the ever-present attention seeker, has infamously proposed his 9-9-9 plan to reform the tax code. It would throw out the existing tax code and replace it with a 9% corporate tax rate, 9% individual income tax, and 9% national sales tax. Cain has not explained his plan much beyond that except to say that his advisors have crunched the numbers and it will be deficit neutral.

Former Utah Governor and Ambassador to China Jon Huntsman (disclaimer, I volunteer on Huntsman’s campaign) has proposed a tax and jobs plan that synthesizes many aspects of Romney, Perry and Cain’s proposals. He calls for tax reform in which loopholes and deductions for corporations and the rich are eliminated and the base is broadened. The corporate tax rate would then be reduced from 35% to 25% and the personal income tax would be reduced to flatter, fairer rates of 8%, 14%, and 23%. He has also called for expanded oil and natural gas exploration, regulatory reform, free trade expansion, and stronger relationships with foreign nations.

Other candidates have made various similar and sometimes outlandish proposals. Rick Santorum, has proposed cutting the tax rate for manufacturing to 0%, an interesting thought. Ron Paul has proposed eliminating the Departments of Education, Commerce, Energy, Interior, and Housing and Urban Development. Michelle Bachmann has not been able to formulate a sentence that does not end with “repeal Obamacare.”

Many of these proposals are seriously flawed. Romney’s tax plan leaves the existing tax code, loopholes, deductions, and all, in place allowing for companies like GE to continue to make billions of dollars and pay no income taxes. Perry’s tax plan also leaves the existing loopholes and deductions in place because those benefiting from them will not choose to opt-in to the proposed flat tax. Cain’s plan is simply simplistic; as a tax lobbyist I spoke to recently put it, “I have serious questions about a tax policy that can be summed up in a catch phrase.”

Santorum’s proposal concerning tax rates on manufacturing is intriguing but has little chance of success in Congress. Paul’s proposals are simply ludicrous; maybe in a perfect world we could do away with five Executive Agencies and be fine, but that is not this world. Huntsman’s jobs and tax plan was called “big and bold” by Reuters and “as impressive as any to date in the GOP presidential field, and certainly better than what we’ve seen from the front-runners.” Because of my stake in the Huntsman campaign I will let you decide for yourself.

What is clear is that the Republican candidates for president have displayed many similarities and many differences in these proposals. The distinctions may seem minute, but they are clear and integral in this time of economic woe. The candidates now have approximately eight weeks to distinguish themselves from each other and from President Obama. It should be interesting to watch.

Putin in Power: Continuity and Complexity

2011-10-01T08:42:00.000-07:00

The amiable yet complex diplomatic relationship between the United States and Russia has taken another turn in the last week. Former Russian President and current Prime Minister Vladimir Putin has announced that he will seek reelection in 2012 to the Presidential office, which he held from 2000 to 2008.

Putin, a former KGB operative and Communist Party member, has maintained a love/hate relationship with the United States during his time in public office. American representatives and leaders have perceived a Cold War attitude from the post-Cold War presidency.

Over the past few years, United States Presidents and President Putin have butted heads over issues such as the unofficial reunification of Soviet bloc countries, the use of natural resources—particularly natural gas—to detach Germany from the Atlantic Alliance, and the Russian invasion of Georgia in 2005 for which former President Bush called the Russian leader “cold-blooded.”

Putin has also been criticized for instances which many considered violations of human rights. In 2009, Russian attorney and anti-corruption activist Sergei Magnitsky suffered a gruesome death after being in police custody for 358 days. In 2003, billionaire Mikhail Khodorkovsky was arrested and charged with fraud, embezzlement and money laundering after giving financial support to multiple opposition parties.

Putin seems to be attempting to adapt to 21^st century geopolitical realities while remaining a Cold War leader at heart. Ralph Peters of the Washington Post maintains that Putin is a successful leader in that he has somehow mastered this balance. “Not one of his international peers evidences so profound an understanding of his or her people, or possesses Putin’s canny ability to size up counterparts.”

Peters goes on to lay out Putin’s general strategy—which he calls genius—of reconciling the tactics of the Soviet Union and the realities of the current world. “You need control only public life, not personal lives.” In other words, the KGB has been replaced by the Press Service. While the instances mentioned above may prove to be counterarguments to that statement, Putin’s successful reign as President and Prime Minister are evidence of his competent leadership.

In 2008, Putin was disallowed from running for reelection in Russia due to their mandated term limits. He was replaced by Dmitry Medvedev who subsequently appointed Putin Prime Minister leading to the belief that Medvedev was merely a puppet of the former President. Walter Russell Mead, in American Interest, describes Putin’s announced run for president as the “Russian decision to take off the Medvedev mask and put Prime Minister Putin back in the top spot.”

Putin’s efforts to become president once again have put the United States in a difficult position. There are diplomatic conflicts with Russia and there are personal conflicts with Putin. But there are also areas of agreement and mutual benefit. Neither the United States nor Russia wants China to dominate Eurasia. Neither wants Islamic fundamentalists to destabilize the region.

Russia, led mainly by Putin, has used its excess of natural resources to gain influence with multiple Western countries. As Peters states, “seduced by Kremlin policies—from oil and gas concessions to cynical hints of strategic cooperation—Western leaders have too many chips in the game.” The United States and other Western countries are now dependent on Russia for natural resources, geopolitical stabilization, and United Nations support. But they must now deal once again with Vladimir Putin.

Putin’s popularity in Russia is more one of image than policy. According to Peters, he has “renewed Russia’s confidence in the country’s greatness.” He is loved and admired because he is a nastoyashi muzhik, a “real man.” A Putin presidency may be great for Russian morale, but is it good for the world?

9/11, Ten Years Later

2011-09-10T08:08:00.000-07:00

Sunday marks the 10^th anniversary of the terrorist attacks on September 11, 2001. As Christopher Hitchens stated recently in Slate, “10 years ago in Manhattan and Washington and Shanksville, Pa., there was a direct confrontation with the totalitarian idea, expressed in its most vicious and unvarnished form.” On that day, as W.H. Auden put it in 1939, “the unmentionable odour of death/ Offend[ed] the September night.”

It is important in this time of reflection and introspection to both honor the memories of those lost and contemplate where we’ve been and where we’re going. Much has changed in the last ten years, both in the United States and abroad; the future success or failure of our country will be determined by the decisions made in the next few months and years.

In September, 2001 the American economy was recovering from the bursting of the dot com bubble but still remained on a solid financial and political foundation. The housing and construction industries were booming, corporations were enjoying substantial liquidity, and inflation and unemployment remained low. Although the 2000 presidential election was as contentious as any in recent history, the government enjoyed a budget surplus and relative bipartisan enthusiasm.

During the Clinton years and the beginnings of the Bush Administration, the United States enjoyed stability in foreign affairs, disrupted only by small-scale conflict in Bosnia, Kosovo, and Iraq.

But the world has drastically changed in the last ten years. In technological terms, the United States has almost entirely completed the transformation from an industrial power to an economic system dominated by technological innovations, financial dealings, and hyper-compartmentalized knowledge industries.

As New York Times columnist Thomas Friedman whimsically stated on Meet the Press, ten years ago “Facebook didn’t exist. Or for most people it didn’t exist. Twitter was a sound. The Cloud was in the sky. 4G was a parking place. Linkedin was a prison. Applications were something you sent to college. And, for most people, Skype was a typo.”

In many ways, the attacks on 9/11 have altered the military fabric of the world in a way analogous to the way technological innovations have completely altered the social fabric of our country. They are obviously not equivalent in their ramifications, but understanding the extensive challenges we are facing is crucial, else we are deemed to repeat the mistakes of the past.

We are still mired in conflicts of astounding financial and personal cost. The American political system is in a constant state of gridlock, our bond rating has been downgraded, and the budget deficit has skyrocketed in the past ten years. We are at a crossroads; our leaders are, at this moment, debating if and how we can break out of this funk.

Republican presidential candidates, such as Jon Huntsman and Mitt Romney, have proposed their own jobs plans—including capital gains cuts, tax reform, increased drilling and free trade agreements—and President Obama proposed his plan on Thursday. They have also discussed and debated multiple perspectives on the foreign entanglements in Iraq and Afghanistan.

We can debate amongst ourselves the ideal solution to the issues we face. Does government have the ability and the responsibility to solve this economic crisis through more stimulus spending, infrastructure projects and education investment? Does the private sector have the main responsibility and greatest aptitude to create jobs and alter our economic system? Should the United States completely end its involvement in the wars in Iraq and Afghanistan?

What is unacceptable as a country is to do nothing. Al Qaeda sought, on September 11, to disrupt and destroy the American military, political, and financial sector while simultaneously inflicting the most significant loss of life possible. The effects were disastrous, but the fabric of our country survived, for a time.

Lacking decisive action, our country is on a path toward failure—and by extension victory for al Qaeda—but we still have hope. Al Qaeda is driven by a totalitarian, anti-American ideal which Hitchens describes as “the big lie.” Abraham Lincoln commented that “America will never be destroyed from the outside. If we falter and lose our freedoms, it will be because we destroyed ourselves.”

Now, ten years after that tragic event, is our opportunity to once and for all declare victory. The attacks on September 11^th “reordered and distorted the decade that followed” as David Remnick put it in The New Yorker. The best way we can honor the memories of the fallen and defeat the “big lie” of totalitarian hate is for our politicians to set us on a path toward financial, military and political sustainability in the decade to come. All that is required is political will.

Winners and Losers from the GOP Presidential Debate

2011-09-08T14:54:00.000-07:00

Wednesday night’s debate was the much anticipated debut of newly crowned Republican front runner Rick Perry. From the beginning, two things became obvious. First, it is not only the press but the rest of the Republican field that views Perry as the frontrunner, evident by the constant barrage of criticism from the other candidates. Second, the main competition, for better or for worse, is and will continue to be between Perry and Mitt Romney.

From the get go, Romney and Perry engaged in a political pissing/spitting contest about their records as governors and their plans for job creation. Perry touted his record as the 4^th ranked job creator among governors in the United States and Texas’ record as the top job creating state during the current recession. He then criticized Romney’s record as the 47^th ranked job creator among US governors during his tenure.

Romney responded by explaining the difficulties the state of Massachusetts faced at the start of his term and the positive steps he took as governor, creating jobs at a faster rate than the national average. He also touted his private sector experience in creating and optimizing companies around the world. He then pointed out that a large percentage of the jobs created in Texas are the result of their surplus of natural resources, not Perry’s policies or leadership, and that Texas has the highest rate in the country of jobs at or below the minimum wage.

Jon Huntsman, the former governor of Utah and perennial voice of reason, chimed in that Utah was the 1^st ranked job creating state during his tenure, but that did not detract from the Romney/Perry rivalry.

By the end of the debate, the hierarchy of candidates became much more clarified. Romney and Perry maintained and even solidified their position as the top tier of candidates. Considering the setting and the crowd, they both presented strong arguments in favor of conservative positions on jobs, immigration, health care and defense. They were both winners of the debate and will now attempt to spin the results more in their own favors using it as a springboard to future debates and appearances in Iowa, New Hampshire, South Carolina and around the country.

Michelle Bachmann and Ron Paul presented strong arguments but failed to make a statement in terms of policy positions or memorable rhetorical flourishes. Both, in my opinion, did more harm than good. Paul further reduced himself to the periphery by arguing that the FDA, TSA and Air Traffic Control are unnecessary government agencies. Bachmann was simply outshined in her conservative, Tea-Party message by Perry who is now funneling her support to his own campaign.

Rick Santorum and Newt Gingrich are most likely on the verge of dropping out of the race. They simply do not have the financial and electoral support to continue the rigorous process of campaigning for elected office. Gingrich, by making multiple attempts to claim unity among the candidates and defend against supposed efforts by the media to divide them, gave off the impression that he was above criticizing his fellow candidates and ready to get behind the eventual nominee. This is not the attitude a real player in the Republican primary should have.

The two remaining candidates, Jon Huntsman and Hermain Cain, are both polling in the low single digits but made positive strides on Wednesday night. Cain articulated coherent policy positions (whether or not they would be beneficial or passable is another story) and Huntsman continued to position himself as holding the rational middle ground. Unlike some of the other candidates, however, Huntsman sounded more presidential; he did not stoop to the personal attacks and criticisms like the other candidates did and he made real, useful references to his past experiences as Ambassador and government official in four presidential administrations. Because of the financial support both maintain, they are likely to remain in the race at least through the New Hampshire primary and have the potential to gain support in the next few months.

Very little was said in the debate that was at all novel. It was simply part of the process of whittling down the field and creating a coherent message for the coming months. Tonight is the Democrats’ turn, with President Obama giving his jobs speech, but it’s also opening night for the NFL…

Why College Students Should Support Jon Huntsman

2011-09-02T14:16:00.000-07:00

Today’s jobless numbers are worrying. According to the report released by the Bureau of Labor Statistics, the American economy added no net jobs in the month of August and the unemployment rate remains at 9.1%. President Obama and Republican frontrunner Mitt Romney are set to release their jobs proposals next week, but one candidate has already done so, Jon Huntsman.

As college students, there are three broad issues pertinent to our interests. The first is jobs. Many of us have parents who are out of work, siblings unable to find work or will be looking for jobs ourselves in the next year or so. Huntsman, the former governor of Utah and Ambassador to China, has outlined a 4 part plan for economic recovery.

First, he proposes comprehensive tax reform which includes simplifying tax brackets and lowering rates, eliminating capital gains taxes, reducing corporate rates and eliminating corporate and personal loopholes and deductions. Second, he proposes expansive regulatory reform including the repeal of Obamacare and Dodd-Frank (the financial regulatory bill), reigning in the EPA and FDA, and enacting patent reform. Lastly, he emphasizes the need for energy independence, through expanding drilling rights and natural gas capabilities, and enacting free trade agreements.

Some of these things may seem obvious, but believe it or not, they have not been outlined by any politician or presidential candidate until now. These are all market-based solutions that will make American companies competitive with foreign corporations, reduce regulatory instability and give individuals and families more money in their pocket. The stabilization of the economy and the stimulation of the jobs market is in our best interest as students soon to graduate.

The second pertinent interest as college students the long-term sustainability of government, specifically in terms of spending. We are still young but at the rate the government is spending, programs like Social Security and Medicare are on a path to destruction while the basic ability of the government to sustain its constitutionally mandated role becomes more and more hazy. With the debt we have built up, and will continue to build up, will be able to respond to natural disasters? Will we be able to respond to an attack on our country? Will we be able to support law enforcement, education, infrastructure twenty years down the road?

Huntsman has been a rational voice in a sea of irrationality during these last few months of debate. While Republicans have decried any revenue increases or defense cuts and Democrats have decried any changes to entitlements, the former governor has clearly stated that decisive action must be taken. We must curtail entitlement spending; we must end costly foreign entanglements; we must reform the tax code.

This is our future at stake; shouldn’t we support a candidate who has our best interests in mind rather than a candidate who caters to special interests (whether they be the anti-tax lobby or the pro-entitlement force, or the pro-military shop)?

The third pertinent issue (and this is by no means and exhaustive list but rather a general summary) that is important to college students includes social and environmental policy. We care about equality, about clean air and clean water, about climate change. Huntsman has been one of the most forward looking members of the Republican Party in all of these respects.

Huntsman recently stated in an interview with ABC’s Jake Tapper that “in a center-right country, I am a center-right candidate.” He also described himself as holding the “sensible middle ground.” Of all the Republican candidates, he is the most reasonable in his politics, personable in his approach and experienced in both foreign and domestic affairs. Right now, the sensible middle ground is exactly what America needs.

Understanding the 2008 Financial Crisis, part 2

2011-08-26T05:38:00.000-07:00

In 2005 and 2006, housing prices began to fall. This, combined with the fact that the mortgages from 2003 and 2004 were reaching the end of their two-year fixed interest rate and spiking, led to defaults in record numbers. The fuse had been lit, the dominoes began to fall; use whatever metaphor you want here, it was bad and only going to get worse.

In March, 2007 Bear Stearns, the 5^th largest investment bank in the country, was unable to meet its financial obligations. They had invested heavily in mortgage-backed securities and CDOs and had even sold some credit default swaps. As their shares plummeted, the Treasury Department, led by Treasury Secretary Hank Paulson (the former CEO of Goldmann Sachs), took action to attempt to stabilize the financial sector. They negotiated a merger in which Bear Stearns was bought by JP Morgan Chase for $2 a share with the government guaranteeing $30 billion in toxic assets.

The markets stabilized for a time but the underlying problem of housing defaults continued. The type of large-scale crisis that occurred in September 2008 was the result of these defaults combined with the shady bookkeeping of Wall Street firms. The actual liquidity of investment banks like Lehman Brothers, financial conglomerates like CitiGroup, and insurance companies like AIG was relatively unknown.

When Wall Street firms posted almost across the board losses in the 3^rd quarter of 2008 resulting from the investment in mortgage backed securities and CDOs all of the dominoes began to fall. Lehman Brothers (the 4^th largest investment firm in the country), whose stock had been trading at $66 a share, plummeted to $2 a share in a matter of months (as pictured below). While Lehman CEO Richard Fuld expected the Treasury Department to give them the same deal they gave Bear Stearns, Secretary Paulson sought a private sector solution (meaning rather than the government guaranteeing Lehman’s toxic assets, the other investment firms would).

But after the deal with Bank of American fell through (they eventually bought Merrill Lynch) and British regulators killed the deal for Barclays to buy Lehman, Lehman was forced to declare bankruptcy on a Sunday night as an attempt to stabilize the markets opening on Monday. It did not. When Lehman declared bankruptcy, British regulations mandated that the personnel at Lehman’s London office leave the premises. When this occurred, investors who sought to withdraw their money from Lehman’s accounts were not able creating panic and a run not only on that one bank but on every investment bank in the world.

As a result, the world-wide credit market was frozen; investors could not get their money out of the banks and corporations, such as GE, could not get enough liquid capital to run their day to day operations. After choosing not to take direct action for the sake of Lehman Brothers, the government realized that they had no other option in this case.

First, they attempted to steady AIG by buying, originally, $85 billion in toxic assets (that number would later increase to about $160 billion). When this failed to stabilize the market and various other financial institutions neared collapse the Treasury Department sought Congressional approval for larger-scale action.

Led by Secretary Paulson and Federal Reserve Chairman Ben Bernanke, they sought $700 billion from Congress for two purposes: continuing to buy the toxic assets poisoning the market and injecting capital into the market to return it from the brink of collapse and unlock the credit market. While Congress originally voted down the measure (which led to a 777 point drop in the stock market, the largest in history) they eventually agreed to and passed the Troubled Asset Relief Program (TARP).

So after years of dubious financial management and economic finagling what was the final product? Millions of Americans defaulted on their mortgages and went into foreclosure; millions of Americans lost their jobs; the American economy lost approximately $1 trillion in value.

And the Wall Street firms? Well the investment banks received $125 billion in TARP money which they were supposed to, but did not, lend out; AIG was given a total of $160 billion in taxpayer money to remain solvent; Fannie Mae and Freddie Mac were taken over by the government. On top of these taxpayer bailouts, the Obama Administration spent almost $900 billion on a stimulus package in an attempt to repair the job market.

We have learned about the dangers of the specific instruments at play during this crisis; sub-prime mortgages, bad; mortgage backed securities, bad; CDOs, bad; credit default swaps, bad. But the realities of the financial system have not changed. The incentive structure remains essentially the same, evident by the record bonuses given out after the financial crisis. The securitization chain remains in effect for various other financial instruments. And the government has not instituted any real financial reform; Dodd/Frank was a valiant effort but lacked teeth.

So now we wait; wait and see if Wall Street has learned its lesson. I for one would feel better if the future of the American economy was not in the hands of those who most recently brought it to the brink of collapse.

Understanding the 2008 Financial Crisis, part 1

2011-08-25T20:58:00.000-07:00

If you’re like me, you have a vague understanding of what occurred in 2008 to bring the United States’ economy to the brink of ruin. The terms subprime mortgages, mortgage-backed securities, collateralized debt obligations (CDOs) and credit default swaps were continuously thrown around on cable television and the pages of our newspapers. But what does it all mean, and what exactly happened? Here’s a quick (and not at all expert) explanation.

There were four main parties involved; the consumers, the mortgage lenders, the government, and Wall Street. All bear some responsibility, to varying degrees.

Consumers, in unprecedented numbers, sought the quintessential American dream, a house of their own with a yard and probably a fountain with some odd gargoyle-like statues. In and of itself, this was not problematic; the housing, construction and insurance industry became a booming part of the American economy and housing prices continued to rise making real estate a positive investment.

But many Americans got greedy. With low interest rates (the Alan Greenspan-led Federal Reserve reduced interest rates to their lowest level since World War II in the years following 9/11) and the continued rise in the value of real estate, people began refinancing their mortgages and using the extra money to buy a boat, or a car, or in some cases another house.

Then there was the mortgage lenders. Due to low interest rates, mortgages being guaranteed on a large scale by quasi-government agencies Fannie Mae and Freddie Mac, and the appetite of Wall Street investment banks for more mortgages to finagle into investment grade bonds, it became more profitable to sign as many subprime mortgages as possible. Because of this, mortgage lenders such as Countrywide began lowering their lender criteria. While, before, you needed a FICO score of 615 to get a loan, people could now get one with a score as low as 500; additionally, lenders stopped requiring down payments or occupational information.

Because the lenders sold the mortgages to Wall Street firms to be packaged into bonds, they had no incentive to be cautious. They began creating mortgages that were almost made to default. Many had a two-year fixed rate at 5% or 6% which would then jump after the second year to 12% and continue at a “floating rate” for the rest of the term. Predatory lending was rampant during this period as people like a strawberry farmer Michael Lewis mentions in his book The Big Short—a fantastic read by the way—who made $15,000 a year and paid no money down on a $750,000 mortgage with a two-year fixed rate.

If housing prices continued to rise, as they had almost uninterrupted for the previous 40 years (as seen in the graph below), people could continue to refinance their mortgage. But, as we know, that did not happen. Around 2005, housing prices began to fall and consumers began to default on their mortgages. The factors discussed explain the crash in the housing market, but why did that lead to a crash in the entire financial sector? That’s where Wall Street comes in.

Since the end of the Cold War, physicists, mathematicians and other intellectuals have been looking for a new avenue to use their skills. Rather than creating new weapons systems and satellites, many ventured into financial markets creating complex instruments such as derivatives and securities.

In the early 1980s, Larry Flink invented Collateralized Mortgage Obligations (CMOs) as a means of creating more value in the mortgage industry. Charles Morris, in his book The Trillion Dollar Meltdown—also a fantastic read and a great summary of the contributing factors—says that the CMO was a “genuinely important invention and had a profound impact on the mortgage industry.” A study in the mid-1990s concluded that CMOs saved homeowners $17 billion a year.

As the mortgage industry became less and less conscientious in their standards, the loans packaged into CMOs became more and more risky. So-called “subprime loans” increased at an alarming rate and the financial instrument evolved from CMOs to mortgage-backed securities, to Collateralized Debt Obligations (CDOs) which packaged subprime mortgages together with credit card debt, student loans, car loans and anything else they could find. The value of these securities was dependent on one very important assumption, that housing prices would continue to rise…forever.

To understand why this financial structure was created and allowed to exist we must understand the securitization chain. Businesses and financial firms such as investment banks seek at all times to maximize profits while limiting their risk. The securitization chain accomplished this goal for almost all the parties involved: it goes like this.

A consumer gets a mortgage on their home from one of the mortgage brokers like Countrywide. Countrywide then sells the mortgage to a financial institution like an investment bank thus passing off the risk in the case of default. Investment banks (Goldmann Sachs, Lehman Brothers, Merrill Lynch, etc.) would then package these mortgages, along with some other goodies, into mortgage-backed securities and CDOs and sell them to investors, thus limiting their risk.

All the while, the rating agencies (Standard & Poor’s, Moody’s, Fitch) rated many of these mortgage-backed securities and CDOs as AAA—in financial terms an almost riskless investment—because they were either duped by the opaque nature of the security or were corrupted by the fees they were paid to rate instruments. This was especially harmful because many investors, such as pension funds and endowments, were limited in their investments to AAA rated securities since they are “safest.” Thus in the end, it was these pension funds and endowments that lost millions of dollars while the rating agencies explained to Congress that their ratings are “merely our opinions.”

Investors, who were banking on a continued increase in housing value, were then most vulnerable to the risk of the market. In order to offset their risk, some invested in another financial innovation called credit default swaps. This is, in essence, an insurance policy. While their mortgage-backed securities increase in value as the housing market booms, the credit default swaps pay off if the housing market busts.

Insurance companies, such as American Insurance Group (AIG), sold credit default swaps because they too were working under the assumption that a large-scale drop in the housing market was next to impossible. They received hundreds of millions of dollars in premiums from various investors and investment banks prior to the crash and owed hundreds of billions of dollars in CDS payments after. The whole securitization chain is pictured below.

All of these factors—the desire for home ownership, low interest rates, reduced credit standards, the securitization chain—combined with a Wall Street incentive structure which rewarded high risk/high reward behavior, created a ticking time-bomb with a single fuse: housing prices.

What Did the Ames Straw Poll Accomplish?

2011-08-16T10:26:00.000-07:00

On Saturday, a small percentage of the Republican electorate in Iowa flocked to the little town of Ames for an event with no real meaning but for which candidates have spent many millions of dollars. Only once in the last thirty years—George W. Bush in 1999—has the winner of the Ames Straw Poll gone on to win the Republican nomination and the White House.

Some candidates, such as John McCain in 2007, skipped the Iowa Caucus altogether because of its reputation as an Evangelical litmus test. McCain had also opposed the Ethanol Tax Credit during his career in the Senate which would have killed any chance he had in the Caucus. Mitt Romney is at least partially following this path due to the fact that his New England persona and Mormon religion do not necessarily play well in Iowa.

While the Straw Poll has very little substantive meaning, it did help to clarify and simplify the Republican primary race which can now be viewed in three tiers.

The top tier of candidates is now made up of Romney, Michelle Bachmann and, as of his entrance into the race on Saturday, Texas Governor Rick Perry. This is where the real action of the Republican primary will occur. Perry and Bachmann will now compete for the votes of the ultra-conservative, evangelical, Tea-Party types while Romney will seek to portray himself as the businessman with a plan to fix the economy and a mainstream electability.

The second tier of candidates will now look to either increase their exposure in Iowa, working towards the Caucus in February, or focus their attention on New Hampshire and South Carolina. In reality, these candidates—Ron Paul, Newt Gingrich, and Jon Huntsman—have little chance of making much headway in the primary, although some, such as Jon Stewart, believe Paul should be getting more press. Huntsman, due to his strategy from the beginning of focusing on New Hampshire and South Carolina plus his financial backing has the greatest chance of becoming a spoiler but that chance is still slim.

Herman Cain, Rick Santorum, and Thaddeus McCotter round out the Republican candidates as the third-tier. With little support and limited funds, these candidates will likely remain in the race through the Iowa Caucus in order to “get their message out” but with little chance of making any electoral headway.

So what does this mean for the Republican Party and for the country? With Bachmann and Perry jockeying for position as the Conservative thoroughbreds, the chances of unseating President Obama become slimmer and slimmer. The majority of Republican Primary voters may agree wholeheartedly with the small-government, deregulatory, social conservatism of Perry and Bachmann but the majority of the American people do not—at least not to that extent.

The further these candidates move to the right, the more difficult it will become for them to pivot naturally to the center in the general election making a general election victory all the more difficult.

There is still a long way to go before the general election and circumstances can change drastically. The economy and job market will be the major factor that decides the election of 2012 and Republican would do well to remember that. A candidate’s perspective on the role and size of government or on abortion and gay rights can be important in a Republican Primary but will be dwarfed in the general election by the issue of jobs.

The Straw Poll is over and there are now six months before the actual Iowa Caucus. Anything can happen—maybe if we’re lucky Jon Huntsman can get a little more traction—but more likely the first tier candidates will continue in their barrage of Conservative talking points and anti-Obama rhetoric all the way to the Republican Convention in August.

Jobs Should Now Be the First Priority

2011-08-11T10:15:00.001-07:00

In the past few weeks, the American political and economic infrastructure has experienced some serious blows. Democrats and Republicans in the White House and Congress spent weeks debating a compromise on the defecit and debt ceiling. In the end, they landed on a compromise that is neither substantial nor popular and was signed into law mere days before the impending default of the United States on its financial obligations.

A few days after this compromise was reached, Standard & Poor's, a credit rating agency, announced that it had downgraded the United States' bond rating from AAA--the highest possible rating--to AA+. S&P stated in their decision that they were "pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabalizes the government's debt dynamics anytime soon." While S&P's credibility is in serious question due to their actions during the financial crisis of 2008--a story for another time--the effects of this downgrade have reverberated through the world economy. In the last four days, the Dow Jones Industrial Average has wildly fluctuared from a high of 11,462 to a low of 10,687 with many peaks and valleys in between.

The question now becomes what is Congress and the president to do? Both parties, and President Obama specifically, have announced a pivot from the debt debate to jobs, although this announcement has been made many times before. While Obama will embark on a bus tour of the Midwest on Monday with stops in Minnesota, Iowa and Illinois, he will then begin a 10-day vacation in Martha's Vineyard with his family. Congress meanwhile is out of session until September.

Criticisms of Presidents for taking vacations and members of Congress for scheduled recesses are always overstated. Political leaders--the president in particular--are never truly on vacation. They have the technology and the wherewithal to conduct most items of business and make necessary contacts from any location. That being said, our political leaders face two challanges resulting from this schedule.

First, there is an image problem. Politicians came out publicly after finalizing the debt ceiling compromise and announced that jobs would be the new priority. Members of Congress subsequently left Washington and returned to their district. The reality of our political world is that little if anything could actually have been accomplished during the month of August had the members of Congress remained there; however the image of the recess is one of Congressmen and women exhausted from a self-inflicted conflict over the debt ceiling going on vacation while the unemployment rate remains above 9% and the stock market seemingly rises and falls on a whim. Image may not be reality, but image is integral in the business of politics.

Second, there is an economic reality problem. As I stated, theunemployment rate stands at 9.1% while the actual unemployment is upwards of 16%. In real terms, approximately one in six Americans is out of work and as is often the case, the brunt of the burden has fallen on the most vulnerable. Poor and lower-middle class families, African Americans, and even teenagers have had the most difficulty in finding employment.

Government does not hold the silver bullet, the magic potion that can fix the economy and return unemployment to a more manageable level. But it does have the ability to influence economic activity. There are compromises on which Democrats and Republican could potentially agree; a great bargain of economic stability. These could include the extension of the payroll tax cut, extension of unemployment benefits, tax reform, allowing corporations to bring overseas money back to the United States without a tax burden, and many other possible solutions.

These may not solve the problem but they would be a step in the right direction. Merely cutting government spending will not stabalize the economy and put us on a path towards consistent and substantial growth. Our government must take further steps; all we need now is leaders who are actually in Washington and who have the political will to take a stand.