Eric Cantor's Rhetorical Deniability

An important part of being a politician is to keep your name before the public in the press. House Majority Leader Eric Cantor (R-VA) did a lot of that recently in the debt ceiling hostage taking by the Tea Party wing of the GOP as its articulate spokesperson and rising star. While congress is on vacation, to keep his name in the press, Cantor has signed off on an opinion piece in the Washington Post, “Removing the obstacles to economic growth.” He says there are two: “The first is the federal government’s debt crisis” and “The second is the jobs crisis.” He should know since his majority is responsible for creating the first one and for doing nothing about the second one. Cantor blames President Obama for each.

The so-called “debt crisis” is a product of the previous Republican administration that decided to wage two wars and to finance them with deficit increases instead of tax increases. “In fact, you need a war to really get a big deficit,” Christopher Chantrill says on usgovernmentspending.com. “The peak deficits came during World War I (16% of GDP in 1919) and World War II (24% in 1945),” he says. Moreover, “The deficits of the Great Depression only came to about five percent of GDP, and the big $1.4 trillion deficit for FY 2009 amounted to 13% of GDP.”

The real problem with extreme government debt would be the interest burden it would create. If interest payments reached 12% of GDP, that could cause a government default. The US is far from reaching that point. However, it was using the debt ceiling to extort political concessions that made a routine financial process look like the crisis it became. Cantor kept his name in the press then by walking out of negotiations with Vice President Biden.

In his Washington Post opinion Cantor writes, “Republicans passed a budget this spring, written by Rep. Paul Ryan, that would address our challenges head-on by putting in place common-sense reforms to manage our debt over the short and long term.”

That is not what the nonpartisan Congressional Budget Office's analysis says. The CBO found “that by the end of the 10-year budget window, public debt will actually be higher than it would be if the GOP just did nothing.” In addition to requiring additional raises in the debt ceiling, the CBO also acknowledged “that seniors, disabled and elderly people would be hit with much higher out-of-pocket health care costs.”

Who needs facts when rhetoric will do?

“President Obama is wrong to think that the answer is to increase spending or raise taxes when so many millions of Americans are out of work.” Cantor’s interpretation of what the president thinks is not what the president says. In a televised address on July 25, 2011, President Obama petitioned for a "balanced" approach that includes spending cuts as well as revenue increases from tax increases for wealthier Americans. In that speech Obama also debunked the Cantor/GOP rhetoric about the debt ceiling allowing the congress to spend more money.

As to jobs, Congress has offered only one piece of legislation that has the word “jobs” in its title, but that is all. It is HR 1745, the ‘‘JOBS Act of 2011.” Cantor does not mention it in his op-ed piece, probably because it does not have anything to do with jobs. What it does is to allow states the option of using federal unemployment-benefit dollars to repay federal loans to help balance their budgets or provide tax breaks to businesses.

According to Cantor, however, “the Obama administration’s anti-business, hyper-regulatory, pro-tax agenda has fueled economic uncertainty and sent the message from the administration that ‘we want to make it harder to create jobs.’” HR 1745 takes money away from the long-term unemployed. Where is the job creation in that?

While Representative Cantor keeps his name before the public, with such rhetorically inflamed publicity as his Washington Post piece, he deserves consideration as one of Congress’s rising stars.

The Treasury Department used $267 million of taxpayer funds to buy preferred stock in a private banking company that employed his wife, Diana Cantor. As part of a Treasury Department program to boost "healthy banks" with extra capital, New York Private Bank and Trust (NYPBT) received its bailout money in January 2009. NYPBT is the holding company for Emigrant Bank, a savings bank with 35 branches in and around New York City. She ran the Virginia branch of the wealth-management division of Virginia Private Bank & Trust, a subsidiary.

To be fair, Cantor's deputy chief of staff Rob Collins said the congressman didn't know the bank was seeking bailout money and never interceded on the bank's behalf with government regulators. Additionally, a spokesman for the bank said Diana Cantor had nothing to do with the operation of NYPBT and was "never aware that the parent bank was seeking or received [bailout] funding."

Last year the Wall Street Journal reported, “Eric Cantor, the Republican Whip in the House of Representatives, bought up to $15,000 in shares of ProShares Trust Ultrashort 20+ Year Treasury ETF last December, according to his 2009 financial disclosure statement. The exchange-traded fund takes a short position in long-dated government bonds. In effect, it is a bet against U.S. government bonds—and perhaps on inflation in the future.”

The Huffington Post picked up the story when it obtained information that said Cantor "stands to profit from U.S. treasury default, which thereby raises the appearance of a conflict of interest," and that he "may be sabotaging [debt ceiling] negotiations for his own personal gain."

Again, to be fair, Cantor spokesman Brad Dayspring said, "The insinuation is so outrageous that it shows a fundamental lack of understanding about how the markets work, how the U.S. economy works." Dayspring added, "Any member of Congress who would seriously identify themselves with this would reveal a complete inability to understand the United States economy and basic investing."

Maybe, but such ignorance does not stop people from acting, especially for personal gain.

Rhetoric and deniability are common in politics and in court. The Department of Justice is investigating the US credit downgrades by rating agencies Standard & Poor and Moody. The downgrade is a direct outcome of the debt ceiling crisis which congressional Tea Party members and House Majority Leader Cantor championed. The credit downgrade also spooked the markets. Cantor’s piece may keep him in the public eye, but it obfuscates the fact that the crisis and the downgrade cannot be laid at the president’s feet. They can be laid at Mr. Cantor’s.

Article first published as Eric Cantor’s Rhetorical Deniability on Blogcritics.

First Bad Bank of the United States

Congress and banking have never been good working partners. Alexander Hamilton conceived the First Bank of the United States to handle the colossal government debt created by the Revolutionary War. Congress drafted and George Washington signed the bank’s charter in 1791. Twenty years later Congress voted to abandon both the charter and the bank. Today the government faces another colossal debt that is being created by the US banking system itself because the system is becoming insolvent. Saving the system may well require Congress to nationalize it. They may draft a charter for Barack Obama to sign creating the First Bad Bank of the United States.

Right now the nation's largest banks are carrying half a trillion dollars in bad debt. According to Nobel Prize Winner Paul Krugman, of the New York Times and Princeton University, the idea of temporary bank nationalization has “moved from the fringe to mainstream acceptance.” Krugman championed the cause for nationalization before the Bush Administration began its bungling government-intervention. "The chances of your being able to do this without nationalizing at least a couple of really troubled banks are not too good," Krugman told ABC.

Nor is he alone in that assessment. Economists Matthew Richardson and Nouriel Roubini may not be names that non-economics types recognize but they are of guru status and in agreement with Krugman that nationalization is the only way out of the out of the current financial crisis. The $1.2 trillion subprime mortgage mess is only the beginning of the problem. “Another $7 trillion -- including commercial real estate loans, consumer credit-card debt and high-yield bonds and leveraged loans -- is at risk of losing much of its value,” Richardson and Roubini wrote in the Washington Post.

How big of a hole are the banks in? It is huge, about $400 billion. This includes losses on loans and the drop in market value of the assets they hold but not the federal bailout funds that they got last fall. Nationalization appears to be the only option that would permit solving the bad asset problem on the banks balance sheets and allow lending to resume.

I use the word bad instead of toxic to describe assets with unknown value. Toxic is a buzz word that pertains to poison. Bad means bad and assets are at the core of this nationalizing business.

Here is the way nationalizing the banks would work. The government takes over running the banks. The bank assets are separated into two piles, good and bad. The good assets would again go private for sale to a buyer or to many buyers through stock offering to the public, such as an IPO. The bad assets would be valued, depressed as that might be, then either sold at their new value to investors or held by the government until the value comes back up to be sold at a profit in the future. In either case, first depositors and then debt-holders would share in the proceeds of the sold assets, with a fee going to the government. The idea is that in time the depositors are paid off and the government breaks even.

Bank nationalization means giving the U.S. government the power to control banks. The government could then choose and install new boards of directors and management as well as set corporate strategy. However, without creating a mega-fund to absorb the bad assets and remove them from the banks’ books, nationalization by itself would do nothing to solve the banking problem.

This is where the Bad Bank comes into the picture. The Bad Bank would be the mega-fund to take a trillion or more dollars of troubled loans and securities off the banks’ books so that credit could get moving again. In other words, the banks could loan money again because they would know what their inventory of money really is. Right now, they do not.

“A bad bank, perhaps run by the Federal Deposit Insurance Corp., would be a big step toward patching up the financial system,” Michael Mandel wrote in Business Week. “However, a bad bank would not eliminate the toughest choices that need to be made. In particular, Treasury Secretary Timothy F. Geithner, FDIC head Sheila C. Bair, and other regulators would still have to decide which banks are insolvent and need to be closed, partly nationalized, or completely taken over.”

What about the government running the banks? It would not make much difference, really. The government would not do a bad job at running the banks since clearly no one has done a good job at it. The problem is the borrowing. The federal government already borrows over a trillion dollars a year. Nationalizing our banks would add trillions of dollars more.

It is not that the government is not already in the banking business, either. Last September Uncle Sam stepped in and effectively nationalized two of the largest mortgage buyers in the country. The government placed Fannie May and Freddie Mac into conservatorship. It could because it backed both of those companies, which had federal charters.

It might have been hard to imagine before the election, but even Republicans such as Senator Lindsey Graham (R-SC) concede that nationalization may be necessary. “To me, banking and housing are the root cause of this problem. I'm very much afraid any program to salvage the banks is going to require the government . . . I would not take off [of the table] the idea of nationalizing the banks."

The president opposes it. "This administration continues to strongly believe that a privately held banking system is the correct way to go, ensuring that they are regulated sufficiently by this government," White House press secretary Robert Gibbs said when asked about nationalizing the banks. I am suspicious whenever a White House press secretary says anything because that is how it launches trial balloons.

Lawmakers already semi-nationalized the banking sector after the first rumbles of the credit crisis last fall. The Bush/Paulson treasury forked over $350 billion in government aid to more than 300 institutions in turn for some of those firms’ shares and other securities. Bank nationalization worked in Sweden with its five banks while we have thousands of banks here, but that does not mean nationalization cannot work here. To say “no” to nationalizing US banks because that is not the way we do things in the good old USA does not make much sense. The First Bad Bank of the United States is an idea whose time has come.

Originally published in Blogcritics Magazine, February 10, 2009