Heidi Li's Potpourri

When trust melts down

In conversation with a friend yesterday, he asked me why the government needed to play any role in the current economic situation. My reply: in our economy the federal government plays a vital role in creating trust among citizens, and modern capitalist economies rely heavily upon trust.

To function, our economy requires a free flow of capital. Various mechanisms permit capital to flow, including banks lending to each other, banks lending to individuals, individuals investing in corporations, corporations investing in innovation. In a modern economy these mechanisms rely heavily on something quite intangible: trust. When loans are made lenders have to trust that borrowers will be around to repay them (whether the borrower is a homeowner or a bank. Similarly, when a person or a company places money in a bank or uses it to purchase equity (stock or some other ownership interest), that person or company must trust that that the bank will not fail and that asset has sufficient value to be worth buying.

In the current economic climate, consumers do not trust banks, banks do not trust each other, investors do not trust that available equity interests have the worth they are represented as having and they do not trust that these interests will hold whatever current value they do have.

This is why central banks around the world are being asked to or affirmatively trying to step in as lenders - suppliers of capital.

Meanwhile the U.S. Congress, led by Nancy Pelosi and Harry Reid, are attempting to pass legislation that vouches for the different players in the financial world so that some level of trust will be restored. Their problem is that they think that vouching for these institutions means giving them lots of money.But nobody trusts a bill that gives money directly to institutions nobody trusts. (I realize the gift is being put in the form of "buying distressed assets" but the government is prepared to overpay wildly for these assets; the gift is the difference between the assets' true worth (unknown) and the price the government plans to pay (to be determined by a complicated reverse auction process.))

And people who followed the Democratic Party convention closely certainly have no reason to trust anything Nancy Pelosi says or does or anybody she endorses, including her preferred presidential candidate, Senator Obama. At the Convention, Speaker Pelosi played a major role in abandoning Party rules and coercing delegates into a rigged process to produce the Obama nomination. So it comes as no surprise to see her willing to change rules for special interests she apparently favors, to promote a bailout for large banks who speculated with depositors' money. That's the Pelosi way.

I am not urging that the government take no steps to stabilize the credit markets. Nor am I suggesting that only Speaker Pelosi and Senator Reid are solely responsible for the bill, which was originally put forth from the White House. But the House of Representatives has consitutional responsibility for appropriations, and a spending bill that has the the support of the Speaker is the Speaker's responsibility. Sure, Speaker Pelosi can say she's holding her nose while voting for the bill. That would be in keeping with what she's asking millions of voters to do on November 4 on behalf of her preferred candidate.

The Pelosi-Obama style - not so much the rage at the moment

Yesterday Speaker Nancy Pelosi once again demonstrated her powers of political leadership. For people who were not intensely engaged in the primary season, Speaker Pelosi's methods for consensus building seem to be coming as something of a surprise as does her glaring lack of consistency let alone integrity. (Listen to Speaker Pelosi's speech in support of the legislation it was her job as Speaker to see passed.)

When Speaker Pelosi would like - or even needs - the cooperation who do not share her point of view, what does she do? She insults them. As she has done with Clinton Democrats for months, so she did with House Republicans yesterday.

When Speaker Pelosi finds it convenient to say something true, she does but if it is not convenient, she does not. She, along with her preferred Presidential candidate, Senator Obama, spent the primary season denying the economic success of President Bill Clinton's administration. On the floor of the House yesterday, Speaker Pelosi  repeatedly emphasized President Clinton's success at securing the nation's economic foundations by balancing the budget, a move that brought economic prosperity in the aftermath of President George H.W. Bush's total failure on the economic front.

When Speaker Pelosi finds it expedient to claim that something is good she claims it is good, when she finds it expedient to shift to an inconsistent position she nimbly dodges over. On September 28, Speaker Pelosi said the bill was a wonderful bipartisan achievement made all the better by the measures she pressed for, such as not giving Secretary Paulson $700 billion effective immediately. On September 29, speaking in support of this legislative achievement she made no mention of the provisions in the bill meant to check the Secretary's ability to draw down more than $250 billion at first.

When Speaker Pelosi wants a result she seems to think that all Democrats will simply fall in line behind her. So instead of coming to the floor of the House having done the work necessary to persuade members of her own party to stand with her, she arrived with over 90 of them ready to steer clear of the legislation she had just 24 hours ago been touting as an example of Democratic success in checking Wall Street greed. Similarly, Speaker Pelosi arrived at the Denver Democratic Party presidential nominating convention having spent months insisting that the party was unified around Senator Obama despite the fact that Senator Clinton had won the popular vote and if a free and full roll call vote had been held, with uncoerced superdelegates playing their appropriate role, Senator Clinton might very well have won the nomination on the first ballot. At the convention, aware she did not have the votes, Speaker Pelosi was able to use a combination of delegate intimidation and payments from her PAC to superdelegates to prevent a straightforward voting procedure rather than risk an outcome that was not her first choice. Too bad for Speaker Pelosi that  election tampering is harder to pull during a House floor vote.

If you want years and years of Pelosi-style political "skill" dominating U.S. federal level politics, then you will vote for Barack Obama on November 4. Because if Barack Obama becomes the next president of the United States, Nancy Pelosi will insist upon remaining Speaker of the House. She will based her claim to legitimacy on her support of Barack Obama. No matter how badly she has performed as Speaker of the House - and she has performed stunningly badly - she or somebody she supports will carry on as Speaker.

Furthermore, if Barack Obama becomes the next president he, with help from Nancy Pelosi (and Harry Reid and Howard Dean, some other masterful politicians of our day) will appoint  the next set of DNC leaders. His claim to this prerogative will rest  upon the fact of his winning and the fact that, according to tradition, this is the winner's prerogative. And like Nancy Pelosi, Senator Obama believes in breaking from tradition or acting for real change so long as that benefits him personally; if sticking with the status quo is more advantageous to Senator Obama's own agenda than change is no longer the order of the day.

You can be sure that any DNC leadership appointed by Barack Obama, would be very likely to continue to support candidates  cut from the cloth of Nancy Pelosi and Barack Obama. Senator Clinton will be further marginalized by her own Party; and the Party leaders will carry on efforts to shun President Clinton, the most successful Democratic President in Nancy Pelosi's adult life (the Speaker was 5 years old when Franklin D. Roosevelt died) and Barack Obama's entire life.

No, I do not think John McCain is a wonderful alternative for the next four years. Nor did I think the bailout legislation was good public policy (for what I had to say about that, look here). But I think a Democratic Party dominated by the Pelosi-Obama style is an even worse state of affairs, not just for the next four years but for many years thereafter. If I thought I could reform the Republican Party and make its members understand the need for a total overhaul of how this country handles health care or convince them of the significance of reproductive rights for women and civil liberties for all, then I would actively support the Republican Party. But the prospect of being able to achieve that seems slimmer than even the admittedly daunting challenge of bringing about a total overhaul of the Democratic Party.

For some other good reads about the problems of with the Pelosi-Obama influence on the Party and the country see From The Range at FDR.