Mike Kueber's Blog

October 25, 2011

What happened to Will Hurd?

Filed under: Media,People,Politics — Mike Kueber @ 1:22 am
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When I ran in the Republican primary for Congress in 2010, the media darling was Will Hurd, a young man who had gone to high school in San Antonio, became a student politico while attending Texas A&M, and then disappeared into the CIA for almost a decade.  Suddenly he reappeared in San Antonio and declared he wanted to represent his hometown in Washington.

Because I value experience, and because I believe career politicians are an evil force in American politics, Hurd was low on my list of people qualified to represent the 23rd Congressional District.  I was not shy about declaring that Hurd was incredibly unqualified in my opinion; in fact, I described him to a Texas Tribune reporter as Obama-lite.  And that doesn’t even consider his status as a carpetbagger.

Despite his lack of qualifications to serve, Hurd was surprisingly well equipped to run for office.  His FEC filings reflected two extensive networks of supporters – A&M alumni throughout the state of Texas and CIA personnel in the Washington, D.C. area – and his campaign was flush with money, much of which was spent on consulting, surveys, and advertising.

Because of his highly professional campaign, Hurd surprised everyone by winning the five-man primary election.  But he did not gather enough votes to avoid a run-off, which he subsequently lost to the erstwhile favorite, Quico Canseco.  (Some have opined that the tide switched when the electorate learned that Hurd was an African-American, something that the media hid, like FDR’s polio.)  Quico went on to decisively defeat the incumbent Ciro Rodriguez in the 2010 Republican landslide.

Since the election, I occasionally wondered what happened to Will Hurd, so I would check on Google or Facebook for information –  but there was nothing.  Although I thought Hurd was a carpetbagger who had no interest in living in San Antonio, I suspected he might  stay around to see if the congressional redistricting process created any opportunity for him.  (He ended his campaign with $40,000 saved for the general election.)

Unfortunately for aspiring Republican politicians, the congressional redistricting failed to create any opportunities in the San Antonio area.  The two Republican incumbents (Canseco and Smith) strengthened their districts, and the two Democratic districts remained virtually impregnable. One of Texas’ new districts was placed in the San Antonio/Austin area, but it is designed to allow Hispanics to choose the victor.  No low-hanging fruit for a Republican carpetbagger.

Will Hurd was out of sight, out of mind until today, when I received a Northside School District newsletter that was trumpeting seven distinguished graduates.  You can imagine my surprise at seeing a profile of Will Hurd.

What had this 1995 graduate done to earn such an honor?  According to the article, Hurd had a computer-science degree from A&M, worked for the CIA for nine years, ran in the Republican primary in 2010, and “works at a Washington, DC-based Crumpton Group, an international strategic advisory firm that helps identify risks and opportunities for clients worldwide.”  According to an article in Newsweek, Crumpton Group is run by a former career CIA guy, and the article describes the firm with language appropriately spooky; i.e., “a private consulting firm in Washington and Warsaw that brokers information, access, and business deals in emerging markets.”

Sounds like one of those national-security revolving doors that the public complains about.  Just think if Hurd had been able to get in a term or two as Congressman before getting on the merry-go-round.  I wonder if the Express-News, which feverishly endorsed Hurd, would be willing to admit that it shouldn’t have endorsed a carpetbagger who likely would have been representing his Washington, DC donors at least as much as he was representing the citizens of the 23rd District.

What was the Northside School District (NISD) thinking?  It is the fourth largest district in Texas (97,439 students) and has been churning out graduates since 1951.  Surely, there are more distinguished graduates.  But I have noticed that the NISD has become extremely political in the past few years, and this spring it’s superintendent, John Folks, became a leading attack dog against a state legislature that was trying to balance its budget.  Not suprisingly, Folks was subsequently named Texas Superintendent of the Year by the Texas Association of School Boards.  The selection of Hurd probably reflects that current partisan nature of NISD.  Too bad they don’t focus on the kids, and leave the politics to Austin politicos.

If you were not filled with sour grapes, would you think that Hurd deserves to be one of seven exemplars for NISD?

October 17, 2011

Another reason for the TEA Party to distrust Romney

Filed under: Issues,People,Politics — Mike Kueber @ 12:46 am
Tags: , , ,

Ever since reading Romney’s book No Apologies, I have been a big fan of Mitt.  I am attracted to Romney’s candidacy because of his policies (center-right instead of hard right) and his temperament (pragmatic instead of ideological).  True conservatives, however, have been reluctant to buy into the Romney campaign because many of them subscribe to Barry Goldwater’s classic statement from 1964 – extremism in defense of liberty is no vice and moderation in pursuit of justice is no virtue.  Although most thoughtful Republicans disdain the term RINO, a lot of TEA Party activists enjoy applying it to Romney.

Fortunately, Romney appears to understand that he can’t please everyone.  Although he has obviously drifted a bit rightward during the lead-up to the primaries (witness his refusal in a debate to accept a 10-1 spending-cut/tax-increase compromise with the Democrats), he remains centered enough to eventually wage a strong battle for the independent voters.

My major concern with Romney is that he doesn’t appear to have a reformist bone in his body.  He acts like a technician who is perfectly satisfied to work with the current system instead of someone like Cain who is willing improve the current system by thinking out of the box.  Cain whole-heartedly pushes his the 9-9-9 proposal for tax reform, whereas Romney in his No Apologies book said that the Fair Tax was an intriguing idea, but ultimately too risky to implement.  We can expect that the tax system will be tweaked, not reformed under Romney.  The TEA Party prefers bold action over caution.

Another example of Romney’s cautious mainstreamism appeared in an article in the NY Times today.  While I had recently blogged about Republicans needing to wean themselves from Wall Street money, the Times article revealed that Romney was doing the opposite in pursuing that money with the vigor on an 18-year-old boy in heat.  Although Wall Street had bankrolled Obama in 2008, the industry was now unhappy with Obama’s Wall Street reform (the Dodd-Frank bill) and was now throwing its money at Romney, who would apparently roll-back that reform.

I’m not defending the Dodd-Frank bill.  Perhaps it deserves roll-back as much as ObamaCare.  But whoever decides to retain, repeal, or replace Dodd-Frank should not be compromised by Wall Street money.  Sure, Mitt can tell us that he hasn’t prostituted himself to Wall Street and that he will do the right thing.  But all those transfers of money from them to him say otherwise.

Ronald Reagan used to say that just because they are buying into his agenda doesn’t mean that he is buying into theirs.  Bullshit.

October 15, 2011

Swearing off Wall Street money

Filed under: Politics — Mike Kueber @ 6:43 pm
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Shortly after my congressman, Quico Canseco, was swept into office last November, he caught a flight to Washington, D.C.  The purpose of the flight was to begin retiring the immense debt that his campaign incurred.  You see, Canseco is a rich man, and to defeat his entrenched Democratic opponent Ciro Rodrigues, he had loaned his campaign half a million dollars.  (Actually, he was doubling down because he was still owed half a million dollars from an unsuccessful primary election two years earlier.)

According to news reports, Canseco was being shown around town by Texas congressional power broker Jeb Hensarling, who would shortly defeat Michele Bachmann for the #4 Republican leadership position in the House.  Hensarling said it was important for the freshmen to quickly eliminate their debt so that they could focus on defending themselves in a mere two years.

The item on Canseco’s Washington agenda that caught my eye was a fundraiser hosted by Hensarling that resulted, among other things, in a $5,000 contribution to Canseco from Goldman Sachs.  Yes, the Goldman Sachs that was one of the most notorious villains in the financial meltdown.  And yes, Canseco was a TEA Party partisan who initially backed the bailout, but then backed away from it as it became unpopular.  This sort of financial shenanigans is a perfect example of why many people are disgusted with politicians.

Since Canseco’s first Washington foray, I’ve lost track of his fundraising toward his debt and the next election.  But the issue was brought to mind yesterday when a columnist for the Washington Post suggested that, in response to the Occupied Wall Street movement, Democratic politicians should publicize a pledge against accepting campaign money from Wall Street.

In his column, Harold Myerson acknowledged that taking a pledge against Wall Street money could be as dangerous as unilateral disarmament.  The danger of walking away from millions of dollars, however, could be ameliorated by:

  • Good-Government groups like No Labels could attempt to raise some money for the pledgees to offset the absence of Wall Street money.
  • The voters could make the signing of the pledge an important component of a candidate’s values – sort of like Grover Norquist’s No New Taxes pledge that is obligatory for any serious conservative.

Myerson contemplates that the pledge against Wall Street money will only be attractive to Democrats.  I disagree.  I can’t understand how a TEA Party partisan could accept money from Goldman Sachs.  Yes, I know that Canseco did, but that suggests Canseco is not a genuine TEA Party person.

The Democratic Party by no means has a monopoly in trying to minimize the role of money in politics.  Although they posture for regulation of campaign financing, the Party’s current head Barack Obama famously became the first presidential candidate to reject public financing because he was unwilling to give up the huge financial advantage that he could achieve through private financing.

And Obama is not an anomaly.  My previous blog posting was about a Politico article that profiled ten up-and-coming politicians who were showing tremendous skill at fundraising.  Of the ten profiled politicians, seven were Democrats.

And finally, according to a Good Government group that is concerned about the corrupting effect of money in politics (the Center for Responsibility in Politics):

  • The financial sector is far and away the largest source of campaign contributions to federal candidates and parties….  The sector contributes generous sums to both parties, with Republicans traditionally collecting more than Democrats. Yet in the past two election cycles, bankers have suddenly shifted their cash toward Democrats.”

This doesn’t have to be a partisan issue.  It’s a Good Government issue.

July 14, 2011

Watering-down the Dodd-Frank bill

I recently blogged about the Bureau of Consumer Financial Protection (BCFP), which was created by the Dodd-Frank bill in 2010.   Because consumer-banking transactions are beyond the capacity of most Americans to understand, I blogged that the BCFP would do more good (minimize unethical banking practices) than harm (increase a nanny-state mentality).

Today’s NY Times reports that our nation’s big banks are working overtime to water-down the effectiveness of the BCFP.    According to the article, high-paid banking lobbyists are overwhelming the government officials who are trying to implement the agency.  I don’t object to big banks
being able to petition the government through skilled, articulate mouthpieces, but I do object to their ability to curry favor with legislators by spreading money around like horse manure.

I recall that my local congressman, Quico Canseco, traveled to Washington, D.C. within days of his 2010 election to collect a $5,000 contribution from the Goldman Sachs PAC and other financial-service giants.  Now that Goldman and its ilk are trying to shape the implementing regulations of the Dodd-Frank bill to ameliorate its $14 billion problem, I’m confident that they believe the $5,000 contributions to Quico and his colleagues was money well spent.

The answer to this corruption is simple – voters should quit voting for politicians who accept contributions from special interests – i.e., PACs and other bundled contributions.  Let the special interests earn support based on the merits of their arguments, not on the size of their wallet.




June 7, 2011

Gerrymandering in the 23rd Congressional District

As I previously blogged, the Republicans in Austin have gerrymandered the 23rd congressional District such that, whereas a majority of the district voters in 2008 voted for President Obama, a majority of the voters in the reconfigured district voted for John McCain in 2008.  That suggests that the district’s Republican congressman, Quico Canseco, will be able to hold on to his seat in 2012 if he can hold on to all of the John McCain voters.  That shouldn’t be difficult because, in hindsight, McCain was not a strong candidate, while Obama was.

You might recall that in my campaign, I complained that Quico was running for Congress in the 23rd District even though he lived in the 21st District of Lamar Smith.  More significantly, Quico had lived most of his life in another district in Laredo.  He was a classic carpetbagger.

Well, as a typical political insider, Quico has taken maximum advantage of gerrymandering.  According to a map of the most recent redistricting, Quico has not only annexed additional conservative McCain voters, but also annexed the gated development that he lives in.  District 23 now contains a narrow strip of territory – the Canseco corridor – that drops from Loop 1604 for a mile or so down Vance Jackson Road until it reaches the Canseco abode near Wurzbach.  It is a classic corridor to nowhere.

I think gerrymandering is an ugly American tradition to achieve partisan political advantage.  I think gerrymandering a narrow corridor in your district so that your house can be included is an example of narcissism that people see too often in politicians.  A recent poll of Texans revealed their opposition to political gerrymandering, but it is not a big enough issue to force politicians to do the right thing.

To make matters worse for me personally, the boundary for District 23 bulges away from me on three sides so that I now find myself in Charlie Gonzalez’s 20th District, one of the most liberal in the state.

I can only hope that the courts revise the boundary, but the court’s focus will not be on cynical, stupid aspects of the boundaries, but rather on violations of the Voting Rights Act.

If you want to know what congressional district you will be in, go to the Texas Legislative Council website, select Plan C141, and then click the “find” tab and enter your address.



June 2, 2011

Congressional-redistricting surprise – the politicians win while the voters lose

The Republicans in the Texas legislature have finally released their congressional redistricting proposal for the 2012 elections, and Rich Dunham has provided an excellent analysis of the winners and losers.   According to Dunham, Ft. Worth, San Antonio, and the Valley were the big winners while Austin, Houston, and Dallas were the big losers.

Because of the state’s (mostly Hispanic) population gains, Texas will have four additional House districts, for a total of 36.  Three of the new districts will be in Ft. Worth, San Antonio, and the Valley, and local politicos are already plotting their next moves.  Dunham categorizes Austin,
Dallas, and Houston as losers because they were carved up and mixed with voters from outlying areas to diminish their ability to effect the election of big-city politicians.

There is a new saying in politics that, because of gerrymandering, voters no longer pick the politicians, but rather the politicians pick their voters, and this latest round of gerrymandering certainly proves that point.  A cursory look at the redistricted map shows that the new congressional districts are inexplicably configured.   The only way you can make sense out of the map is to know whether an area has Republican voters or Democratic voters.

Republican map-makers have drawn the district boundaries so that there are just enough Republicans in a district to win the election, but not so many as to win a landslide.  By contrast, a few districts are packed with huge percentages of Democrats to ensure the election of a fire-breathing
extremist in those few districts.  As the districts have now been re-drawn, Texas is expected to elect 26 Republicans and 10 Democrats to Congress.

Gerrymandering is horribly unfair to the voters because it makes a mockery of the principle that voters in a district should have a community of interests.  District 23, which I ran in last year, is a perfect example.  One-third of its voters live in far northwest San Antonio, which is primarily filled with Anglo Republican voters and another third live in far south San Antonio, which is primarily filled with Hispanic Democratic voters.  The final third of its voters live is west Texas, stretching 500 miles from the outskirts of San Antonio to the outskirts of El Paso.  This ranching area
is filled with approximately equal amounts of Hispanic Democrats and Anglo Republicans.

Because of the configuration of District 23, the ranching West Texas community of voters is assured of having a distant outsider represent them, and either the north or the south sides of San Antonio are assured of having a congressman who is antithetical to their interests.

If you think District 23 sounds like a competitive district, you would be correct.  In fact, it is one of the few competitive districts in Texas.  In 2008, it voted for Obama and re-elected a Democratic congressman (Rodriguez), but in 2010 it voted for Democratic candidate for governor (White), but threw out the Democratic congressman and voted in a Republican (Canseco).

With Republicans in charge of drawing the boundary lines for 2012, you know that they did some tweaking to squeeze a few more Republicans into this erstwhile competitive district and to squeeze out a few Democrats.  According to the reported numbers, the newly re-drawn District 23 voted for Rick Perry for governor in 2010, so that should make the district safely Republican in 2012.

Texas has a history of being lackadaisical about fair redistricting.  In fact, it went 30 years from the 1920s to the 1950s without redistricting its legislature until the federal courts finally decided to require “one person, one vote” throughout the nation.  And because Texas has a history of not being fair with the voting rights of minorities, Texas is still subject to prior-approval of all redistricting plans under the Voting Rights Act of 1965.  For an excellent review of Texas’s redistricting history and laws, see the white paper by the Texas Legislative Council (TLC).

This white paper by the TLC explains that gerrymandering of congressional districts is even more distorted than state districts because the federal constitution fails to provide any restrictions on the process whereas Section 26 of the Texas constitution wisely provides the following:

  • The members of the House of Representatives shall be apportioned among the several counties, according to the number of population in each, as nearly as may be, on a ratio obtained by dividing the population of the State, as ascertained by the most recent United States census, by the number of members of which the House is composed; provided, that whenever a single county has sufficient population to be entitled to a Representative, such county shall be formed into a separate Representative District, and when two or more counties are required to make up the ratio of representation, such counties shall be contiguous to each other; and when any one county has more than sufficient population to be entitled to one or more Representatives, such Representative or Representatives shall be apportioned to such county, and for any surplus of population it may be joined in a Representative District with any other contiguous county or counties.

Although Section 26 doesn’t specifically provide for compactness, it indirectly accomplishes this by its so-called “county line” rule, and this is reflected by the Texas House redistricting map.    Unfortunately, the Texas legislature does not apply the county-line rule to congressional redistricting because that would limit their ability to effectively gerrymander the districts to maximize the number of Republican members in Congress, which is all they care about.  They don’t care that voters in rural El Paso will always be represented by a congressperson who lives 500 miles away in San Antonio.

Of course, Democrats are not innocent victims here.  As pointed out by Rich Dunham in the analysis cited above, Democrats engaged in gerrymandering just as egregious until they lost control of the legislature a decade ago.

I have no doubt that the voters of Texas believe in election fairness and have nothing but antipathy toward gerrymandering, but it’s an issue analogous to term limits and lawmaker pay & pensions – i.e., lawmakers are able to obfuscate and filibuster to thwart the will of the people.  Representative democracy has its limitations.

One solution to all of this dysfunction would be for Texas voters to have a right to initiatives and referendum.  I can’t think of a more significant to improve the functioning of government in Texas.

January 25, 2011

Late-train money

This Sunday’s edition of the Express-News contained a fascinating article titled, “Late-train money chugs in.”  (Paper edition only, not on-line.)  The article describes the amount of money that poured into the area’s state legislators following their electoral victories in November.  Because of the timing of the contributions, this money is clearly not spent to help a candidate be elected, but rather to buy access and influence with a candidate who has already been elected. 

I previously took umbrage at my new local congressman, Quico Canseco, for traveling to Washington, D.C. a few days after his electoral victory to accept contributions from Washington fat cats such as GE and Goldman Sachs.  After reading this article, it seems that Quico was a slacker in his money grubbing.

Because Texas doesn’t want its legislators brazenly bribed by campaign contributions, it prohibits contributions during the 140-day legislative session.  Thus, all of the late-train money must be compressed into a five-week window between November 3 and December 11.

The Express-News article leads with a state-wide statistic – since the November election, the 181 winning legislators in Texas have received $11.3 million in contributions (plus $2.1 million to the governor and lt. governor).  That’s about $60,000 for each legislator.

The extraordinary article includes a financial profile (pre- and post-election) for each of the area’s four senators and ten representatives.  The profile includes the total amount raised, the largest individual and PAC donors, and the largest donor city.  Not surprisingly, Austin, not San Antonio, was the largest donor city for 10 or the 14 legislators.  This makes you wonder who the legislators feel they represent.

Each profile concluded with a tidbit that characterized the individual legislator’s money-grubbing efforts.  Among the most interesting tidbits:

  • A hospital in the Rio Grande Valley (RGV) – Doctors Hospital in Pharr – was the leading PAC donor to Sen. Zaffirini ($25k), Rep. Gutierrez ($5k), Rep. Farias ($5k), Rep. Straus ($50k), and Rep. Villarreal ($5k).  Why is a RGV hospital so interested in the re-election of San Antonio legislators?  This seems like a blatant attempt to buy influence.
  • Speaker Straus collected $2.4 million, which is about $10 for every resident in his district.  This sum is troubling because it appears that Straus is selling access and influence on a vast scale.  The sum is doubly troubling because Straus can use this money, which he obviously doesn’t need for re-election to his district, to buy support from other legislators for his continued speakership.  Perhaps the Republican caucus needs to prohibit the Speaker from giving money to preferred Representatives.
  • Of all 14 legislators, Joaquin Castro collected the least money – $55,200 – and I think this reflects well on him.  He does not represent a competitive district, and this financial inactivity shows his security.  Barack Obama early in his career said that money-grubbing was a necessary evil until one establishes name identity and a record.  Although Obama later abandoned this principle, perhaps Joaquin Castro will remain a principled practitioner.

The article concluded with a detailed discussion of this issue vis-à-vis my state rep – newly-elected John Garza – who was most egregious in late-train money.  Of the $171k that he collected, 69% came in after his upset victory, including $25k from the Texans for Lawsuit Reform.  Garza’s chief of staff Art Martinez defended the late-train money:

  • “The question has two false implications – because you take money from a lobbyist, you’re automatically going to vote that way.”  No, Mr. Martinez, that is not the suggestion.  The suggestion is that the contributions buy access and influence, which should not be for sale
  • “Two, that the current system, the way it’s set up, is such that you don’t need money, you don’t need campaign funds to operate.”  Apparently, the state pays for only one district office, whereas Garza has decided to establish three.  If three offices are necessary for public business, I think the citizens of Texas would prefer that they pay for those offices instead of forcing legislators to sell their votes to contributors.  If those three offices are needed to political purposes, Martinez completely misses the point that you shouldn’t sell your office so that you have a competitive advantage in future races.

Money in politics is a major reason for public cynicism.  Although politicians will publically claim to be looking out for the little guy, their non-public actions will often ensure that the fat cats who bankroll their campaigns are protected.

January 14, 2011

Why conservatives are more impassioned

During the past election cycle, the Tea Party senatorial candidate from Nevada Sharron Angle famously said: 

  • I hope that’s not where we’re going, but you know if this Congress keeps going the way it is, people are really looking toward those Second Amendment remedies and saying my goodness what can we do to turn this country around? I’ll tell you the first thing we need to do is take Harry Reid out.” 

Although the U.S. Supreme Court had recently held in D.C. v. Heller that the Second Amendment prevented the government from prohibiting guns, Angle’s statement seems a bit over the top for a senatorial candidate.  We don’t want to encourage the formation of more Branch Davidians or the Posse Comitatus. 

But Angle’s comment was not an isolated one.  Liberal Congressmen John Dingell recently compiled a list of conservative comments that he considers inflammatory,    and conservatives on Talk Radio yesterday were circulating a competing list of liberal libels.  There seems to be a groundswell in the mainstream, before and after President Obama’s Tucson address, for tamping down the other guy’s rhetoric. 

Of course, not everyone puts a high value on civility, with a caller to Rush Limbaugh suggesting that civility is the new word for censorship.  Rush agreed with the caller and suggested that the call for civility is tantamount to the government telling citizens to shut up.  

I am torn by this issue.  When I ran for Congress, one on my campaign planks called for an end to the name-calling, and my campaign brochure took issue with Quico Canseco’s statement that pro-choice Americans and secular liberals were “evil forces.”  But I think there is an important difference between (a) considering someone to be evil and (b) passionately disagreeing with an opponent’s position. 

Furthermore, I may be wrong on this and am willing to be enlightened, but it seems to me that defenders of liberty are more entitled to be impassioned than the proponents to the growing government encroachment into our lives.  Remember Patrick Henry’s, “Give me liberty or give me death”; or Woodrow Wilson’s, “Liberty has never come from the government.  Liberty has always come from the subjects of it.  The history of liberty is a history of resistance.”  Benjamin Franklin said, “They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety.”  And finally, Ronald Reagan said, “Freedom is never more than one generation away from extinction. We didn’t pass it to our children in the bloodstream. It must be fought for, protected, and handed on for them to do the same.”

America can’t remove passion from the process because passion for liberty is in our DNA.

January 10, 2011

Campaign financing – two more bones to pick

Because there can be no doubt that money in politics affords undue influence to those willing to give money to politicians, I am a supporter of campaign-finance reform, especially public financing.  Ironically, one of the people most associated with campaign-finance reform – John McCain – is one of the people I have a bone to pick with:

John McCain

John McCain ran for president in 2008, and prior to the general election he agreed with Barack Obama to conduct their general-election campaigns with public financing and the concomitant limits.  Barack Obama, however, after realizing how easy he could significantly out-raise McCain with private financing, reneged on that agreement and decided to run his campaign with much more expensive private financing. 

After losing the presidential election, McCain was faced with a quasi-competitive senatorial race from talk-show host, ultra-conservative J.D. Hayworth.  Because I had given money to McCain presidential race (although I eventually voted for Obama), I was on the receiving end of countless, never-ending requests from McCain for money “to combat the distortions of his record by my opponent.”  Obviously, I had no interest in giving money to McCain to claim that he was more conservative than his opponent.  Besides, I subscribe to the philosophy of a young Barack Obama that a well-known, long-term legislator should be able to run on his record and should not need to wage an expensive public-relations campaign.

Eventually, after spending $20 million in the primary, McCain prevailed against Hayworth by 56%-32%, but that didn’t stop his requests for money.  During his lopsided race against Democrat Rodney Glassman, McCain continued to implore me to send money to ensure his vital election.  In November, the result was another lopsided victory for McCain, 59%-35%. 

You can imagine my shock when I heard recently that John McCain had more than $7 million left in the bank following his election.  That means he was begging for money, ostensibly for urgent needs, while he was actually socking the money away for future use.  If I had given him money for his senatorial race, I would be incensed.  Even though I didn’t give him money for his senatorial race, I think his incessant requests were fraudulent. 

Candidate mortgages

The principal opponent in my congressional race was Quico Canseco, a wealthy banker/lawyer/developer who loaned himself over a half a million dollars in a 2008 congressional-primary race.  Undeterred by a convincing defeat by Lyle Larson, Canseco ran again in 2010.  This time, because Lyle Larson lowered his sights to the Texas House, Canseco won the Republican primary and then, as a part of the Republican landslide of 2010, won the general election against Ciro Rodriquez.  In achieving the 2010 victories, Canseco loaned his campaign another half million dollars.  

Shortly after his election victory, Canseco traveled to Washington, D.C. to attend a fundraiser to begin eliminating his campaign debt.  Among those he collected money from were Goldman Sachs ($5,000), American Association of Anesthesiologists ($5,000), Conoco ($3,000), General Electric ($1,000), and U.S. Oncology ($1,000). 

Obviously, these companies were not giving Quico money to help him secure an election that he had already won.  Rather they were paying for access to Quico in the future.  But contributions towards debt-elimination are even more egregious than purchases of access.  Instead of providing money for a candidate to use in future campaigns, this money may go indirectly to the politician’s bank account (repaying his personal loan).  Candidates who lose their races will obviously never be able to pay off their loans (e.g., Hilary Clinton) while candidates who win their races (e.g., Quico Canseco and Julian Castro) will be able to sell their power and influence to pay off their loans to themselves.  

The solution to this mess is simple.  There should be a law that all loans to a campaign must be paid before the election.  If the loan is not repaid prior to the election, the candidate should be prohibited from collecting on the loan. 

A rich candidate may have the right to try to buy an election, but that candidate should not have the ability to pay for a campaign by giving a mortgage on his future votes.

December 26, 2010

Sunday book review #6 – Chasing Goldman Sachs by Suzanne McGee

Goldman Sachs has become the fall guy for the 2007-08 worldwide financial meltdown.  Although there were eviler institutions – such as AIG, Countrywide, Washington Mutual, and Fannie Mae – those institutions were humbled and punished, albeit some inadequately.  By way of contrast, Goldman Sachs’ arrogance barely missed a beat (or a bonus) while accepting a multi-faceted government bailout.

The popular conception of Goldman Sachs (GS) is that of an unproductive, money-grubbing leech, or in the famous phrasing of Matt Taibbi in Rolling Stone – “a great vampire squid, wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”  But my hero Warren Buffett has said good things about GS and its chairman Lloyd Blankfein.  At Berkshire’s annual meeting last May, shortly after the SEC accused GS of fraud, Buffett described Blankfein as “smart” and “high grade” and rejected the possibility of trying to oust him – “If Lloyd had a twin brother, I would vote for him.”  Furthermore, I own 150 shares of GS (bought on May 3 for $149 after hearing Buffett’s recommendation, and it is currently selling for $167), so I need to do my due diligence before deciding whether to disown them.  I decided to do that by reading Chasing Goldman Sachs by Suzanne McGee.

Part I of the book – titled Dancing to the Music – consists of four chapters that describe how Wall Street devolved from a staid utility to an extremely risky player.  Among the things I learned in those chapters:

  • Fundamentally, GS and other investment banks play an invaluable role in what author McGee calls the world’s “money grid.”  She uses this term to describe the financial world because she likens it to a heavily regulated utility that delivers an essential service – just like water or electricity – to the economy.  The financial utility (investment bankers) is supposed to be a middleman who merely facilitates the transfer of capital from people who have a lot of money (investors) to those who need a lot of money (businesses).  That sounds like Economics 101.  While commercial banks obtain their money from deposits, investment banks raise their money through equity and bond transactions.  Investment bankers simultaneously serve two clients – buyers who need money and sellers who have money.
  • The problem with this “money grid/utility” analogy is that investment bankers like GS were dissatisfied with the low-risk returns that are generally the lot of utilities.  To generate a higher rate of return-on-equity (ROE), they ventured off into high-risk, highly-leveraged activities.  Instead of working to obtain capital for Main Street businesses (low-revenue work), investment banks started developing exotic financial products for hedge funds and private-equity firms.      
  • High-risk, highly-leveraged activities enabled investment banks to obtain incredibly high ROE rates in the last decade – between 15% and 40%., with GS usually leading the pack, and others jealously trying to catch up by leveraging their capital ever more riskily.  GS’s ROE from 1996 to 2008 was 24.4%, by far the highest in the industry.  Lehman was second at 19.2% and Morgan Stanley was third at 18.6%.  Everyone was “chasing GS.”    
  • The obscene bonus structure at investment banks shifted everyone’s focus to the next quarter’s financial results, with almost no concern for long-term financial soundness or reputation.  For example, in 2007 bonuses at GS averaged $661k per employee, while Lehman’s was $332k.  Although Lehman’s employees should have been happy, they were enviously “chasing GS.”
  • To raise more capital, all major investment banks transformed from partnerships to corporations, beginning with Donaldson, Lufkin & Jenrette in 1970 and ending with GS in 1999.  The partnership structure was especially conducive to restraining risk-taking because it created a feeling of personal responsibility whereas a corporate structure promotes a feeling of personal immunity.

Part II of the book – Greed, Recklessness, and Negligence; the Toxic Brew – consists of three chapters that provide a more technical description of the three major attributes of post-2000 Wall Street that caused the meltdown:

  1. Compensation policies.  Obscene bonuses and perverse incentives to increase revenues without any regard to risk.  This caused investment banks to drift away from their less-profitable utility function of moving capital from investors to Main Street business and toward the more-profitable function of creating exotic financial products for hedge funds and private-equity firms.
  2. Risk-management failures.  Fear (of being beaten by rivals) & greed (for more money) success caused companies to disregard risk; risk managers were marginalized.  In other words, “Chasing GS.”
  3. Regulatory shortcomings.  All federal regulators failed to do their job.  Ever since Reagan, the direction was toward deregulation.  The Office of Thrift Supervision (for thrifts) and the Office of the Comptroller of the Currency (for commercial banks) competed with each other to provide the least interference with their clients who were pushing sub-prime mortgages; derivatives escaped regulators.  The SEC was asleep at the wheel, but the book spends very little time discussing SEC failings.

Part III of the book – The New Face of Wall Street – consists of two chapters that describe how Wall Street needs to work if it is going to avoid another meltdown.  This part of the book seems like an afterthought – like author McGee was so caught up in describing the trees that she never developed a sense of what the forest needed.  Among her suggestions:

  • Foremost, Wall Street should return to its role as an intermediary – i.e., a utility that mere facilitates the movement of money from investors to businesses. 
  • Wall Street should be prohibited from making trades with its own capital, investing in hedge funds or private equity divisions.  This would minimize the conflicts of interest between Wall Street and its clients. 
  • And finally, there needs to be a regulator to monitor financial products, like derivatives. 

McGee is not very optimistic that Wall Street will change its ways.  She cites Citibank’s chairman Richard Parson as declaring that they are going back to their basics.  But his “basics” did not include any professional concern for Citi’s clients or the health of the banking industry.  Rather he was referring to Citibank’s core constituencies – employees and stockholders.  Of course, that is the same motivation that got Citi into all of its trouble – i.e., because its employees and stockholders are just as deserving as those of GS, then Citi should do whatever it can to match the financial results of GS (ROE and bonuses).  As a solution to these distorted values, author McGee suggests that the investment-banking world would be a better place if GS competitors tried to emulate, not GS’s financial results, but rather GS’s best features – i.e., strategic thinking and planning.  However, McGee fails to explain how that is going to come about.

McGee also is discouraged by a recent quote that came from Morgan Stanley’s chairman, John Mack.  He declared that Wall Street couldn’t stop itself from screwing up, that regulators need to “step in and control the Street… force firms to invest in risk management.”  Thus, vigorous regulation is needed, and this led to the Volcker Rule, endorsed by Barack Obama, which recommends a prohibition on speculative investments by investment banks that are not on behalf of their customers. 

Subsequent to the publication of Chasing Goldman Sachs, Congress enacted the 2,000-page Dodd-Frank Wall Street Reform and Consumer Protection Act in June 2010.  (Seems that 2,000 pages is becoming the standard length for major reform legislation.)  Among its major reforms:

  1. No more “too big to fail.”  Regulators were given the authority to seize and break-up troubled financial firms if the firm’s collapse would destabilize the financial system.
  2. Back to basics.  Severely restricts the ability of investment banks to invest in hedge and private-equity funds.  (No more than 3% of the bank’s Tier-1 capital.)
  3. Derivatives.  Extend comprehensive regulation to the heretofore unregulated, over-the-counter derivatives market.
  4. A new consumer protection agency.  Creates a new agency to protect consumers in the areas of credit cards, mortgages, etc. from hidden fees, abusive terms, etc.
  5. Federal Reserve audit.  Mandates a one-time audit of the Fed’s emergency lending programs from the financial crisis.
  6. Eliminates the Office of Thrift Supervision.  Its regulatory assignments are transferred to the Fed (holding companies), FDIC (state savings associations), and the OCC (thrifts).
  7. Securitization.  Requires banks that package mortgages to keep 5% of the credit risk.
  8. Credit-rating agencies.  Establishes a quasi-public agency to regulate conflicts of interest that are inherent in the rating business (after a study by the SEC); authorizes investors to sue and the SEC to fine the rating agencies for bad ratings.
  9. Hedge funds.  Hedge and private-equity funds are required to register with SEC and provide info trades to help regulators to monitor systemic risk.

After reading Chasing Goldman Sachs and other books on the financial meltdown, I find myself impressed with the Dodd-Frank bill.  The bill passed by highly partisan votes in the House and Senate (only three Republican senators supported it – two from Maine and one from Massachusetts), but I don’t know what the Republican objections were.  Perhaps it had to do with their historical opposition to the Democratic philosophy regarding regulating – as Ronald Reagan humorously captured – “If it moves, tax it.  If it keeps moving, regulate it.  And if it stops moving, subsidize it.”  Michelle Malkin called it “the Dodd-Frank monstrosity masquerading as financial reform.

Not discussed in Chasing Goldman Sachs, but something that I have read elsewhere, is the fact that GS is one of the most politically connected entities in America.  Former GS employees rotate in and out of virtually every important financial regulatory office.  Plus, they are not shy about spreading money around where it does the most good.  I was hugely disappointed a couple of weeks ago when I read that my newly elected, Tea Party Congressman Quico Canseco traveled to Washington, D.C. shortly after his election to pick up a $5,000 check from GS.  They obviously bet on the wrong horse before the election and were trying to make amends.  What makes this especially disappointing is the fact that Quico is a lifelong banker, and this might enable him to have outsized importance in future banking developments – just like I could have had with insurance-industry issues or candidate Will Hurd could have had with Afghanistan/Iraq issues.  This campaign contribution suggests that Quico will more likely be an outsized force for bad instead of a force for good.

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