GOP Presidential contenders fumbled substantive questions during last week’s debate. [Credit: ibtimes.com]
The issue didn’t come up during last week’s GOP debate, so Trump didn’t have the chance to elaborate on his declaration that he would have approved the project only if the Canadian company forked over 25 percent of its profits.
“I want a piece of the deal,” Trump told Bret Baier of Fox News. “When I say I want a piece, I’m now representing our country the way I would represent myself.”
Trump and his GOP rivals did not represent themselves well at their most recent debate. Confronted with substantive policy questions, they produced some moments that were embarrassing enough to make this viewer yearn for the much-maligned CNBC moderators.
Those moderators, you might recall, made little effort to conceal their contempt for the presidential aspirants or for the audience. Instead of requiring the contenders to explain and defend their policy positions (which is, after all, is the debate’s purpose), the moderators posed clown questions and in the process made themselves the debate’s biggest losers.
“This is not a cage match,” Republican candidate Texas Senator Ted Cruz declared. “And if you look at the questions: Donald Trump, are you a comic book villain? Ben Carson, can you do math? John Kasich, will you insult two people over here? Marco Rubio, why don’t you resign? Jeb Bush, why have your numbers fallen?”
“How about talking about the substantive issues?” Cruz pleaded.
Be careful what you wish for.
At last week’s debate, the candidates were challenged on substance and the results weren’t always pretty. Cruz engaged in a cringe-inducing exchange on bank bailouts with Ohio Governor John Kasich. The upshot: neither appeared to have heard of the FDIC, which insures deposits up to $250,000. The bank bailouts didn’t protect depositors, since their assets already were secured by a program that’s been around since the 1930s.
But you wouldn’t know that listening to Cruz and Kasich carry on. When Kasich erroneously suggested that protecting depositors required the Solomonic hand of an “executive” to pick and choose among depositors who could “afford” to lose their money and “the hard-working folks” who couldn’t, Cruz triumphantly proclaimed, “So you would bail them out.”
“When you are faced with banks going under,” Kasich replied, “and people who put their life savings in there, you got to deal with it.”
Actually, you don’t got to deal with it. The FDIC already does. Whether or not you agree that the government was right to bail out financial institutions, the actions were not undertaken to protect depositors.
Kasich also called for the U.S. to establish a “no-fly zone” in northern Syria. On this, he has plenty of company on both sides of the aisle. Hillary Clinton has embraced the idea, as have (in alphabetical order): Bush, Carson, Christie, Fiorina and Rubio. Trump has been cryptic, calling for a “safe zone” (whatever that is), while Cruz didn’t answer the question directly during a recent “Meet The Press” appearance.
Many critics of the President’s inscrutable war of choice in the region have urged the creation of a no-fly zone almost since the Syrian civil war’s inception, but circumstances changed dramatically with Russia’s entry into the conflict. Rand Paul seemed to be the only candidate who noticed.
“Russia flies in that zone,” Paul reminded viewers, “at the invitation of Iraq. I’m not saying it’s a good thing, but you better know at least what we’re getting into.”
OK, so Paul flubbed the question too, since the candidates have generally talked about establishing a no-fly zone over portions of Syria, not Iraq. But he at least recognized the perils of pursuing this strategy now that Russian warplanes are flying missions in Syrian airspace.
Establishing a no-fly zone in Syria over the objections of its government is a serious matter. Risking armed conflict with Russia in the process is downright dangerous. Candidates who advocate such steps must explain to voters what these actions would accomplish, what could go wrong and why it’s worth the risk.
Then there’s the Trans-Pacific Partnership, a trade deal the Administration negotiated with nine Asian governments. China, Mr. Trump informed the audience, is “the number-one abuser of this country. And if you look at the way they take advantage, it’s through currency manipulation. It’s not even discussed in the almost 6,000-page agreement. It’s not even discussed.”
“We might want to point out,” Mr. Paul interjected, “China is not part of this deal.” Which might explain why the agreement doesn’t discuss Chinese monetary policy.
At this point in the campaign, candidates shouldn’t be botching questions on trade deals, bailouts and no-fly zones. Republican candidates did, retreating to pat answers that betrayed a fundamental misunderstanding of critical issues. That’s not a winning strategy.
Voters deserve better than a President who is glib, smart and thoroughly ill-equipped to meet challenges at home and abroad, as we were reminded again when Islamic State terrorists struck Paris just hours after President Obama had boasted of having “contained them.”
He has left the world more dangerous and the nation more divided than he found it. Repairing the damage and healing the wounds will require an extraordinary leader. Such leadership was little in evidence during last week’s debate. There still is a long way to go in this campaign, more than enough time for the candidates to think through their positions and master policy details. Those who want to convince voters that they’re up to the challenge should get busy.
And if things don’t work out for Trump, there are other countries that may one day be in the market for new leadership. His insistence on getting “a piece of the deal” on the Keystone permit suits him very well for the presidency of countries like Venezuela and Russia.
Watch your back, Vlad.
The FDIC only has funds to cover 3% of the deposits it “insures”. When the national debt causes the next economic meltdown and bank run (see Greece for preview), where will the additional funds come from? Looks like an executive order to me. I think half of the candidates knew this and were responding accordingly. The other half?- hey, I blame the public schools!
Bear in mind that the “I” in FDIC stands for “insurance.” If insurers were required to reserve 100 percent of the value of the things they were protecting, insurance would be impossible. Your auto insurer, for example, doesn’t reserve 100 percent of the value of every car it insures. Nor does your homeowners insurance reserve the full value of all the homes it covers. Instead, its underwriters set premiums based on risk, reserving enough money to pay anticipated claims, cover administrative costs and turn a profit. FDIC premiums similarly do not finance reserves that equal 100 percent of the insured asset.
That’s not to say the FDIC is a perfectly run program. It is not. It is a program run by the government and consequently strongly influenced by politics. Bankers succeeded during the 1990s in getting Congress to establish a much more lenient system, with the result that 90 percent of banks paid nothing for deposit insurance. Then in 2006, at the behest of the banking lobby, Congress put a hard cap on the size of the FDIC reserve fund, even as the banks assumed more risk. The result was that the fund went negative when the financial crisis hit.
When it does go negative (as it did during the most recent financial crisis and during the S&L crisis of the 1990s, though in both cases by less than 50 basis points), the FDIC can use a line of credit with the Treasury Department to make good on payments to depositors. The agency tapped this emergency line of credit during the 1990s. It did not do so during the more recent crisis, since banks were flush with cash from the Fed and TARP. Instead, it required banks to prepay their assessments, thus putting the reserve fund in the black.
In any case, Cruz (who opposes bailouts) and Kasich (who seems to support them) haven’t the faintest idea of what bailouts are. First, they do not protect depositors, something FDIC did. (NOTE: In the Cyprus bailouts, haircuts were only taken by depositors with accounts above the insured amount of 100,000 euros.) Second, they do not protect shareholders. Indeed, former AIG CEO Hank Greenberg sued the Fed when it forcibly acquired the insurer at a discounted price it dictated. Nor do they protect creditors. GM bondholders were wiped out in the bailout imposed by the Obama Administration.
The bank bailouts first and foremost protected banks from runs by other banks. Consider the AIG bailout. AIG had insured mortgage-based derivatives against downturns. Their assumption was that they could continually collect premiums without having to pay out, since they assumed that real estate values would increase in perpetuity. When the derivatives went sour, AIG’s counterparties – mostly big banks who had loaded up their balance sheets with that garbage – lined up to collect on the insurance. AIG couldn’t make good on its promises. So the Fed did it for them. The biggest beneficiaries were Deutschebank and Societe Generale, who received 100 cents on the dollar for their bad investments.
That’s the biggest scandal of the bailouts: the Fed printed money to make big banks – including foreign banks — whole on their lousy bets. Someone needs to explain that to Kasich and Cruz.
The “banks” are a legal contrivance, not a real individual. They do not enjoy the identity and privileges of personhood. They exist because we lend them money in return for storage safety and a small fee, or to borrow that money for a larger fee. When the “bank” makes an investment which defaults, the larger jeopardy is to the depositors, not the shareholders. Making the banks whole after a fiasco like the credit swap affair really protects the deposit assets of real people, not just the legal contrivance alone. Treasury knew the FDIC did not have nearly the necessary funds to make all the individuals whole, so they took the cheaper route of printing enough money to keep the “banks” from failing. Since the Donald is the only candidate who really understands this issue, we’re all in big trouble!
Banks are corporations with assets and liabilities, just like medical practices. Deposits are liabilities, as is the money banks borrow from bondholders. The largest banks are publicly traded, so they have shareholders. Others are privately held. Finally, banks have counterparties, with whom they often have highly leveraged arrangements.
The FDIC requires that deposits up to $250,000 be federally insured. This gives depositors a privileged status, making them the only group of creditors that has to be paid 100 cents on the dollar should a bank fail. This system has worked since the 1930s, through literally thousands of bank failures, including eight so far his year. Bailouts did not, contrary to the contentions of Kasich and Cruz, pay any of those depositors, all of whom were made whole up to the insured level.
Bailouts generally wiped out shareholders and, in the case of GM at least, bondholders, despite federal bankruptcy laws that provide some level of protection to senior debtholders. And, of course, it protected counterparties (usually other banks) and labor unions (again, in the case of GM) often paying them the full amount despite the fact that they would be entitled to little or nothing in the bankruptcy pecking order.
That – and the fact that the government extended hundreds of billions in loans to the largest banks through TARP – is what made the bailouts controversial. The candidates seem to have no clue of that, though the bailouts were one of the major factors (along with the stimulus bill and Obamacare) that inspired the Tea Party movement. It is incredible to me that Ted Frickin’ Cruz – Mr. Tea Party – thinks the bailouts did anything to protect depositors.
As for Mr. Trump: he clearly understands bankruptcy, but that doesn’t make him a banking expert. If he were, he would have spoken up during that mindless exchange between Cruz and Kasich.