On the DNC revelations

copyright, James Staudt, 2017, all rights reserved

The recent Donna Brazile revelations about the control that the Hillary Clinton campaign exerted over the DNC prior to even a single primary vote was cast may not seem surprising.  What it certainly proves is that neither of the two major party candidates - Trump or Clinton - was worthy to hold the office once held by Abraham Lincoln.

So, how did this happen?  The DNC under Debbie Wasserman Shultz, was financially in trouble.  In 2015 they made a deal with the Clinton campaign that the Clinton campaign would help with their debts and in return the DNC would turn over all decision-making, including staffing, to the Clinton campaign.  The Clinton campaign made numerous staff replacements, including according to Tulsi Gabbard (former vice chair of the DNC and a representative from Hawaii) replacing long-time DNC staff with Clinton-selected lobbyists.  In addition, state DNC party contributions would be funneled to the Clinton campaign through the DNC.  According to Representative Gabbard, 99% of such contributions were sent to the Clinton campaign.  So, contributors, thinking that they were helping local candidates, now realize that their contributions were being funneled to the Clinton campaign.

Supporters of Bernie Sanders, who suspected a rigged system, have been vindicated.  My democrat friends have had a very difficult time accepting the fact that the reason Donald Trump is president is not because of Russia as much as it is the fact that the democratic party offered a candidate that is at best extremely divisive or worse, untrustworthy.  This is not to excuse Donald Trump, who I have never considered an acceptable person to serve as president (and, I did not vote for Trump).  However, many of those who voted for Trump were people who knew that the Washington DC deep state is not working for them and were hoping for change from an outsider.  Most, I suspect, have been disappointed.  Nevertheless, this revelation about Clinton campaign control of the DNC will, hopefully, cause democrats to reflect on the party and demand reform.  However, I'm not going to hold my breath.

Are We Going to War?

by James Staudt

copyright 2017, all rights reserved

I hope not.  But, I fear that President Trump's speech at the UN brought back memories of the George W. Bush administration - especially the "Axis of Evil" speech where he told the world that "you are either with us or you are against us".  The stark "us versus them", "good versus evil" tone of the Trump speech is reminiscent of Bush and Cheney at their worst.  Also, President Trump is leading an administration that can't seem to get anything done domestically and is seeing key people from his presidential campaign, such as Paul Manafort, indicted.  A war tends to get the country to rally around a President, no matter how beleaguered he might otherwise be.  So, there are political reasons why President Trump, like President Bush before him, might be inclined to go to war.

Unfortunately, we cannot rely on Congress to prevent the war.  Although our Constitution (Article I, Section 8, Clause 11) gives Congress the sole authority to declare war and the President, as Commander-In-Chief, the power to conduct the war, since World War II Congress has consistently voted to grant the authority to commit troops to military action overseas ("war" by any other name) to the President, rather than make the affirmative choice themselves as was intended by the writers of our Constitution.  This works out well for both Congress and the President.  When things go wrong the President gets to do what he wants and can share the blame with Congress who allowed him to do what he wants.  Congress gets to put the blame on the President by saying that they didn't actually vote for the war but voted to give the President the choice to go to war and the choice was his.  Essentially, each gets to pass the buck to the other.  How convenient.

Make no mistake, there is no happy ending with a war against North Korea or Iran.  Iran is three times the size of Iraq in terms of land and population, and we know how well the Iraq War has gone.  A war with North Korea, while not much of a threat to US citizens at home, puts millions of our friends (and US citizens) in South Korea and Japan at risk and also risks a war with China.  China has made it clear that they will not accept US troops in North Korea, and we saw how well crossing the 38th parallel went about 70 years ago when China entered the Korean War.  President Truman deeply regretted taking General MacArthur's advice on that matter.

Even targeted strikes against North Korea would be a mistake. Kim Jong Un would hardly stand by, or he would risk losing power.  North Korea can easily bombard Seoul with its artillery and would likely do so in retaliation for a strike.  The population of the Seoul metro area is over 25 million.  My son is currently in Seoul on a semester abroad, and I am understandably worried about this.  Even if he weren't in Seoul, I would be opposed to an attack on North Korea.

The only world leader that applauded President Trump's speech was Prime Minister Benjamin Netanyahu.  Netanyahu encouraged the United States to invade Iraq.  He has encouraged a very militant posture with Iran, opposing the nuclear agreement.  In a war with Iran, Mr. Netanyahu's Likud government would be the main beneficiary.  As the United States and Europe have become more preoccupied with turmoil in the Middle East and elsewhere, there is less pressure on Israel to negotiate with the Palestinians.

I fear that we are getting ever closer to a serious war, perhaps even the use of nuclear weapons.

Trump and Dodd-Frank - No Surprise Here

by James Staudt, PhD, CFA

copyright 2017, all rights reserved

President Trump may be changing aspects of the regulations issued in response to the Dodd-Frank law.  How is that even possible?  As described in more detail in Grand Collusion, despite the 2000+ pages of Dodd-Frank, the law did not set any statutory requirements on the banks.  Much was to be determined in future executive branch rulemakings.  Therefore, it is pretty easy for President Trump, or any other president for that matter, to dismantle much of what few actual requirements were imposed on the banks.  This is not to say that there are no procedures that must be followed and that litigation might slow things down; however, because Dodd-Frank set very few statutory requirements and left so much to future executive branch rulemakings, Democrats cannot even filibuster to prevent fairly substantial changes.

This exposes what, in my view, was the fatal flaw of Dodd-Frank - it did not establish much in terms of statutory requirements.  By contrast, the Banking Act of 1933 that was under 60 pages long and gave us over 50 years of banking stability, had very clear statutory requirements - separating investment banking from commercial banking along with other requirements.  The argument that is always made is that there are too many details to be included in the 2000+ page law.  The reality is that today the laws that congress passes are mostly written by lobbyists because lawmakers and their staffs are far too busy raising money to devote much time to writing laws.  So, it was no surprise that Dodd-Frank - despite its length - set very few real requirements on the banks.  Agencies therefore set rules intended to achieve the goals set forth in the law, rules that must go through a proposal and public hearing process, rules that later get litigated, and therefore take a long time to enact and can get further watered down.

So, there is no surprise here.  The only surprise might be that candidate Trump, who railed against Wall Street, now perhaps wants to relax the rules.  However, if you've read Grand Collusion, this should be no surprise.  Wall Street owns both major political parties.  In fact, there is no reason to believe that Hillary Clinton wouldn't have taken steps to change the rules issued in response to Dodd-Frank.

This is not to say that the rules put in place after Dodd-Frank was passed cannot be improved upon in some ways.  They probably can.  However, with Goldman-Sachs executives advising President Trump, it seems likely that changes will be made that favor the banks even if they raise the risk to the taxpayer.

A complaint of the banks is that some institutions find the requirements costly and burdensome. If the current requirements are replaced with simpler capital buffer requirements that are more straightforward to follow but establish a solid bulwark against future failures, that could be an improvement.  Prior to banking deregulation, capital buffer requirements were very straightforward, making "stress testing" unnecessary.  On the other hand, if rules to prevent excessive risk taking through proprietary trading by depository institutions are relaxed (the so-called "Volker Rule"), that could pose a problem regardless of whether or not capital buffers are improved.

The truth is that right now we don't know for sure what President Trump has in mind.  So, we can only speculate at this point.  But, given the influence of Wall Street on every President for the past few decades, we should not be surprised if the already weak requirements of the rules established in response to Dodd-Frank get even weaker.