The Truth Behind The Armchair Constitutionalists

Whenever I hear media stars like Lawrence O'Donnell and Howard Fineman pontificating over whether something is Constitutional or not, I get extremely wary, particularly considering they have spent several years arguing about detainee policy and wiretapping and torture in mostly POLITICAL terms instead of the constitutional aspects. Suddenly when Congress tries to set tax policy toward a particular class of wealthy people the media gets out their social studies texts. I imagine there can be a fair amount of reasonable argument around this, but Scott Lemieux, claims the Constitutional concerns are groundless.

Ed -- regrettably echoing the hapless Charles Krauthammer -- says that "Bills of attainder" and "ex post facto" are two phrases well-known to high school freshmen taking mandatory civics classes, so they must certainly be known to Congressmen." The ex post facto clause, however, has been held since the early 19th century to apply exclusively to criminal cases. The prohibition on bills of attainder is even less relevant; it certainly prohibits Congress from convicting AIG traders of criminal offenses without a trial, but says absolutely nothing about Congress's ability to set tax policy.

Another blogger, in addition to the clearly erroneous claims, asserts that the bill violates the equal protection clause. The obvious problem with this argument, however, is that it proves too much. The tax code discriminates in countless ways -- against renters and wage earners and in favor of homeowners and investment income earners, for example. It was been well-settled for decades that such discrimination require only some rational relationship to a legitimate government interest. The policy taxing bonuses for corporations that would have gone bankrupt without public support bears a much clearer relationship to a legitimate public objective than a law preventing anyone but an optometrist or ophthalmologist from putting lenses in glasses frames, which the Supreme Court upheld unanimously.

The debate about whether a large excise tax is good public policy ought to go forward. But let's be clear what these Constitutional questions are all about. The average salary of practically everyone you see on the teevee is well beyond the national average, and in most cases beyond the $250,000 a year cited in the House bill, and used as a dividing line in Obama's budget to reset marginal tax rates from 35% to 39%. And so, for Overton Window purposes, characterizing any effort to reduce income inequality as unconstitutional makes a whole lot of sense. Take a look at Mark Haines, CNBC's latest hero, arguing that no company can be "run well" by anyone making under $250,000 a year. Because they've been run so well by the overclass to this point.



Here's a separate interview between Haines and Rep. Brad Sherman (D-CA):

HAINES: It does not go far enough, sir?

SHERMAN: Absolutely -- it doesn't deal with the Merrill Lynch bonuses, since they were paid in December, and worse than that it doesn't deal with million-dollar-a-month salaries. More importantly, we should have AIG in receivership, they should've been put in receivership months ago, and we would have saved tens of billions of dollars. We wouldn't see tens of billions going to the richest on Wall Street, and overseas -- and of course, these bonus contracts would have been voided. We need receivership, and we need limits on salaries as well as bonuses.

HAINES: Well, receivership ... I think most people agree, that would have caused some systemic problems.

SHERMAN: Most people on Wall Street agree. But most people on Main Street do not.

HAINES: And what do the people on Main Street know about running a financial system?

SHERMAN: What do AIG executives know about running a financial system? [crosstalk] They only know how to destroy one.

HAINES: This is witch-huntery. I'll be perfectly honest with you.

SHERMAN: We don't have to hunt the witches. We know who they are.

HAINES: You and people who share your opinions seem to think, you know, let's hold salaries on Wall Street to $100,000. Do you have any idea what Wall Street would look like if you do that?

SHERMAN: Well, first of all, I wouldn't set the limit at $100,000.

HAINES: Well, whatever. $250[,000]. All the business would go -- all the business would go overseas, that's the bottom line.

SHERMAN: Obama's position is $500,000 plus unlimited restricted stock. That's where I'm at as well, although I was actually at a higher level before Obama's statement. But for you to assume that Wall Street is acting in the national interest flies in the face of recent reality.

There's a multi-pronged attack here. Congress cannot tax exorbitant bonuses of companies they bailed out because it's unconstitutional. Corporations can only be run well by the rich because greed is virtuous. Only investor participation can save the financial system, so government had better not get any ideas about capping executive compensation. And those executives must be kept happy and lavished with gifts because they are so wise in the ways of exotic financial instruments that they are the only ones who can defuse them, a fairly ridiculous idea.

Similar arguments made during the 1997 Asian financial crisis, when currencies and stock markets collapsed in much of Southeast Asia, turned out to be a smokescreen to protect the executives who were partly responsible for the mess. Recovery from that crisis required Indonesia, South Korea and Thailand to close or consolidate banks. In all three countries, bankers protested, claiming that their connections with borrowers were critical to recovery.

In South Korea, cozy relationships between banks and the large conglomerates called chaebols were a major reason for the crisis. But after the crisis hit, Korean bankers and companies insisted that the complexity of chaebols like Samsung and LG — with their many separate but interwoven businesses — meant that outsiders would not be able to distinguish good loans from bad.

In Thailand, some argued that the preponderance of family-owned businesses — and the lack of clarity about precisely which family members were really in charge — meant that only bankers already working in big institutions like Bangkok Bank and Siam Commercial Bank could determine which borrowers were creditworthy.

The leaders of Thailand and South Korea did not listen to such arguments, and thank goodness. Some of the leading Thai banks were taken over by the government. After the crisis, a civil servant in charge of one such bank noted that its bad loans were much bigger than had been indicated before the takeover, largely because of an internal coverup. Only when outsiders took over did the public discover the full scope of the losses.

We have a major inequality problem in this country. Wages for workers have stagnated while the rich grow ever richer. It is well within the public interest to address that, and because this has become so extreme as to affect consumer spending and economic activity, it's more vital now than ever. Wall Street has decoupled salary from performance and perpetuated a culture of greed in the belief that such greed made sense for the overall economy. But an oversized financial sector that produces nothing but imagined wealth actually debilitates a country. Simply put, astronomical profits from making side bets on the economy should be discouraged, making the same profits from inventiveness and innovation would be encouraged in the exchange.

If it turns out that you can make a comfortable living at zombie institutions but can’t earn big bucks there, then smart, confident, ambitious, greedy people will leave their jobs and go do other things. In a good way! Maybe they’ll start small businesses. Maybe they’ll join non-enormous, better-managed firms and help them grow and prosper. That’s the kind of thing smart, confident, ambitious, greedy people ought to be doing. Putting their talents to work in the pursuit of profitable market exchanges. Not putting their talents to work trying to run scams at taxpayer expense.

There are promising signals that the Administration is taking concerns about executive compensation seriously, although there are far better ways than having a secretive institution like the Federal Reserve "oversee" giant corporations (which they failed to do in the run-up to this crisis). Perhaps one way is to actually tie pay to performance through Silicon Valley-style compensation schemes, but the best way is through the tax code with rates at the highest marginal levels (I'd insert an additional rate above $1 million or more) that look more like the pre-Reagan era. Which is why those who wed themselves to the establishment elite get so nervous with clawback provisions like the AIG bonus tax. They don't want anyone in Washington getting any funny ideas about marginal tax rates. After all, it's unconstitutional.

This Is Such A Set-Up

When I saw that bipartisan press conference claiming that the contours of a deal has been reached, I noticed that the Republican representative from the Senate side was Bob Bennett, not the ranking member of the Banking Committee Richard Shelby. Well, sure enough, Shelby just showed up on MSNBC, and sure enough, he's absolutely opposed to the bill. He was waving around a piece of paper from top economists opposing the bailout, calling it a giveaway to the same Wall Street corporations that created the problem. He also said it bails out foreign banks, which I thought was taken out of the bill.

Shelby isn't wrong, not to my knowledge. As James K. Galbraith says today, the need for this bailout is extremely suspect. Certainly there are better ideas out there than the crappy Paulson plan. And in many ways, lawmakers and the Bush Administration are trying to fix a problem that doesn't have a fix - the housing market hasn't hit bottom, and it'll drag down the economy regardless (though a new Home Owners Loan Corp. would help).

But the politics of this are clear. Right after Dodd and co. announced a bipartisan deal, John Boehner said no dice. They are going to try to stick the Democrats alongside with Bush on this bailout.

I don't know if that will totally work. Pete Stark is calling B.S. on President Paulson's irresponsible talk about bank runs and depressions. Brad Sherman says his office calls are running 300 to 2 against. The results are the same across the country. I think a good portion of Democrats won't go along with this. But the Blue Dogs, those supposed stewards of fiscal responsibility, will, and they'll put Democrats in the situation of being on the side of the largest bank bailout in American history. At that point, the details will be irrelevant. This is Lucy with the football, and if the Democrats manage to blow this one they actually don't deserve to be a political party.

...the other option here is that House Republicans are holding off until McCain "convinces" them, showing how much of a post-partisan leader he is. That's a possibility, but anyone who votes for this piece of crap bill, absent some really enticing language, is in trouble in 2010.

CA-27: Brad Sherman (!) Leads House Revolt Against President Paulson Bailout

This is unexpected but welcome:

Democratic MEMBERS Meeting on Bailout Plan, TODAY, Room 2220, 2:30-3:30pm
From: The Honorable Brad Sherman
Date: 9/22/2008
Skeptical About the
Administration's $700 Billion Bailout Plan?
Democratic Members Meeting
Room 2220
2:30-3:30 P.M.

Dear Democratic Colleague:

Are you skeptical about the $700 billion bailout bill? Let's meet in Room 2220 on Monday, September 22, 2008 at 2:30 PM. Come to the first and perhaps only meeting of the Skeptics Caucus to discuss President Bush's $700 billion bailout bill. Democratic Members and Senior Staff only.

Bring specific legislative proposals. I will be bringing legislative proposals to carry out the principles set forth in the letter below. If you have questions about this meeting, please contact me or my Legislative Director and Counsel, Gary Goldberg, at xyz.

Sincerely,

Brad Sherman
Member of Congress

I would expect this out of a Barbara Lee or Maxine Waters, but coming from Sherman, this means that rank and file Democrats are very wary of getting steamrolled by the Bush Administration and let a major chunk of the Federal treasury flow out of their control. Sherman is pretty middle-of-the-road as Democrats go, squarely in the mainstream of the party if not to the right of the mainstream, not a guy who's out in front a lot and not (to my knowledge) a member of the Progressive Caucus. I've met him a couple times out here in California and he seemed OK, but not exactly the guy I'd expect to go to war with. If Sherman is marching (pardon the pun), there's a very large skeptic's caucus, I'd gather. And Sherman's prescriptions for a better bill (available at the link) are really good.

Plus, there's CA-46 candidate Debbie Cook's statement from earlier:

"We must take action to keep our whole economy from collapsing. But if the plan by the Treasury which has leaked out today is genuine, then it's unclear if the plan will work at all.

"Add in a massive transfer of authority to the executive branch, with no congressional oversight or judicial review, and this plan should be dead on arrival.

"Handing over taxpayer money to the government with no oversight is always a bad idea and it's especially rotten given the current administration's track record."

And Rep. Hilda Solis, traveling with netroots favorite Annette Taddeo in South Florida, released a great statement as well, connecting this fiscal crisis to the effort to privatize Social Security:

"Three years ago, President Bush and rubberstamps in Congress like Ileana Ros-Lehtinen fought hard to privatize Social Security. From the floor of Congress, Ros-Lehtinen said that she “applauded the President for his strong leadership and vision” and that she wanted to “reform Social Security to include private accounts. Had George W. Bush and rubberstamps in Congress had their way, today’s financial crisis would be a full-blown emergency. Tens of millions of seniors around the country, including hundreds of thousands here in South Florida, would have lost their pensions overnight.”

It's time for an "all-hands-on-deck" approach. Call your Representatives and tell them you don't want to give a blank check for $700 billion dollars to the guys who messed up Iraq and the response to Hurricane Katrina.

Falling For It Over And Over

Brad Sherman is causing Petraeus some consternation. He's first of all making a complete distinction between the White House report slated for later in the week and the loony spin that it is the "Petraeus report". He's gotten both Petraeus and Crocker to admit that the report we will see later is the White House report, and he got them to demur over whether or not to give an unvarnished, written assessment of their own. He also tried to put the General in the midst of a Constitutional crisis, inferring that the President would order the military to carry on in Iraq no matter what the Congress limited or barred as part of the appropriations process.

But more important, he obliterated the idea that we should take Al Qaeda statements at face value.

Gen. Petraeus: If I could follow up on just one item you said, Congressman. For what it's worth, Al Qaeda believes that Iraq is the central front in the war on terror.

Rep. Sherman: Well, Al Qaeda is telling us they think it's the central front. They might be lying. They've been known to do so, General, and if we allow Ahmadinejad and bin Laden to tell us where to fight them, they may not give us their best advice.

I abhor the notion of blithely conflating Iran and Al Qaeda as if they're part of the same committee, but there's an important point here being made. Wingnuts are constantly taking statements from Al Qaeda at face value, as if they have any interest in appearing to be rational actors. Over and over again they have fallen for this, particularly with respect to bin Laden's most recent statement. It's astonishing how many times we hear Republicans saying "Just listen to what Al Qaeda says" without any sense of irony at all.