US politics

by

Republican Values

Despite his rejection by a clear majority of the American people, and despite having lost the House and then the Senate to the Democrats, Donald Trump seems to have an incredible hold over the Republican Party. Whilst it is clear the leadership can’t wish him far enough, and criticise his role in the events of 6 January, they are still circumspect in their actions and words. Many members of the party have still failed to say a word against him.

The willingness to call out the ex-presidents behaviour seems to be closely correlated to the distance from re-election. For members of the House that is very soon and they are loath to risk the ire of a man renown for his commitment to revenge. The threat of being primaried or having some of the Trump war chest deployed against them retains their public if not private loyalty.

Some, of course, may be believers in Trumpism. They genuinely think the policies and practices of the past four years are consistent with the constitution and the principles of liberal democracy. In which case one cannot question their integrity though you might their judgement.

It is the ones that know Trump is definitely in the running for the worst American president of all time that are really difficult to fathom. They know the scale of the threat he has been to American Democracy but cannot bring themselves to stand up and be counted.

The job of an American Congressman, is reasonably well paid. The salary is $174,000 per annum for all members of the House and the Senate. There are no additional amounts for being the Chair of a Committee, however, the majority and minority leader in both houses receive $193k and the Speaker of the House receives $223,500.

On top of their base salary they can earn up to a maximum of 15% of a separately based figure with a current maximum allowance of $28,440 giving a potential total earnings from all employments of $202,440, approximately equivalent to £144k.

One cannot believe the concern Republican members have for the Constitution and their nations democracy is exceeded by their salary. There must be some other values which they hold so dear as to be willing to stand silent in the face of incitement to insurrection.

What can those values be?

by

Which McConnell?

Yesterday the leader of the Republicans in the Senate, Mitch McConnell, provided a startling example of decisive leadership in the Impeachment trial of Donald J Trump. He made clear that all charges have been proven so obviously he had to vote to find him… not guilty!

Like much in the Impeachment trial nothing was what it seemed to be. The lawyers for the defence did their best to secure an indictment. The jury were also the judges and, uniquely in this Impeachment, the victims. Having voted on and secured a bipartisan majority in favour of the constitutionality of the Impeachment procedure, most of the GOP of law and order, acquitted the accused on the grounds that the procedure was unconstitutional. It was trial in Wonderland.

But one has to wonder what “hare and hounds” strategy Mitch McConnells thinks he is pursuing? He starts by voting against Impeachment. “Hurrah!” shout 43 Republican Senators and 74m Trump voters. “Boo!” shout 50 Democratic and 7 Republican Senators, and 81m Biden voters.

But no sooner has he voted to prevent Trump’s indictment than he gets up, decries the appalling acts of mob violence on 6 January and is crystal clear about the cause: “There is no question that President Trump is practically and morally responsible for provoking the events of that day.”

“What!” shout 99 Senators and 155m voters?

Clearly this is an attempt by Senator McConnell to support Joe Biden’s calls for unity. In the twinkling of an eye he unites both bases and both parties representatives against him.

What is he thinking?

I struggle with this given he is one of the most experienced senators in Congress having been first elected in 1984 and then chosen as leader of the Republicans in the Senate in 2004. He must have a clear eyed view of what he wants to achieve, but what is it. Is he for or against Trump?

Could it be that after 4 years of unqualified support for the worst president in American history, and that is not a low bar, he has seen the light and recognises the threat Donald J Trump represents to US democracy? Have the scales dropped from his eyes? Is he now a convert to bi-partisan unity?

Or, alternatively, does he have some Machiavellian plan to steal the base?

If the latter he must be playing a long game. He cannot think the joy of the acquittal experienced by the Trump base will override their anger at his attack on their hero! If those storming the Capitol are anything to go by that judgement call would look doubtful.

But maybe he has taken a more sophisticated view about the Trump base and its stability. Perhaps he thinks, whatever the hype of the moment, Trump is likely to be a decreasing force in American politics. One which might be loud on the fringe but unlikely to gain centre stage again.

No longer with access to the most powerful pulpit in the world, nor able to use social media the ex-presidents voice will never be what he was as president. There will be no publicly funded PR machine making sense of, and reinforcing, what he says. Indeed he may find himself having to go to court to answer questions on accusations of sexual assault, business and taxation matters, campaign funding offences and much more.

As a defendant he will have to plead the 5th if he wants to stay out of prison. He will also have to take care of what he says outside of the courtroom if he wants to avoid contempt charges. But being respectfully silent is not his strong suit.

As these cases grind along they will feed deep state conspiracy theories amongst his base, base supporters but for many ordinary Republicans the drip, drip on his credibility will start to wear it down.

As more and more evidence comes to light about the actions of those invading the Capitol, and the precise role of Mr Trump, that too is unlikely to strengthen his position. Whilst a recent poll showed a disturbing 55% of Republicans in favour of violence to defend the American way of life, it also confirmed that 43% were opposed to the use of violence for that purpose. So a lot of Mr Trump’s base may well feel increasingly uncomfortable if they feel his leadership is promoting violence.

But even the base, base may start to have doubts. As insurrectionists come to trial and use Mr Trump as part of their defence and perhaps call him as witness to their patriotism, will he turn up in court to defend them under oath? Will he use some of his war chest to fund their defence? You only have to write it down to know it wont happen.

If he does refuse to support them, or denies their claims they were doing his bidding will he become part of the deep state conspiracy? That would be a delicious irony but history is rarely that kind.

How he uses his quarter of a billion dollar war chest may also start to ring alarm bells. Will he fund the defence costs of any of the invaders? No. Will he fund pimarying? Maybe. Will he fund the mid-term campaigns of those who flatter him most? Maybe. Will he fund the 2024 campaigns of those who go large and long on flatter? Maybe.

But, Mr Trump is notoriously difficult to get cash out of, ask his lawyers. The multi-billionaire Donald J Trump did not make the top 35 list of self funding candidates which goes down to a total of $1m of own funds.

Mitch McConnell is the latest of an increasingly partisan line of leaders of the Republicans in the Senate. It would be a mistake to assume he has changed his spot in that regard. He is also one of the most wily and politically savvy and it would be an even bigger mistake to think that has changed. He may be presenting a Janus faced strategy to the world but it is difficult to not think he sees Trump as a dying star. One which may explode rather than fade but one whose time is limited.

The mid-term are only 23 months away, however, a week is a long time in politics and Senator McConnell has lived through a lot of them. He may well have judged he will be able to pull the majority of Republican supporters away from Mr Trump. Those who do not support insurrection.

However, he will still have to figure out how to address the base, base which Mr Trump has fired up. Their actions are a stain on American democracy incited by Mr Trump who claims he is now the Republican party. His response to Senator McConnell’s comments will not be judged to pour oil on troubled waters. Going forward the good Senator may well need eyes in the back of his head.

The Republicans are in a hole and as yet no sign they have stopped digging.

by

Will Donald J Trump be Found Guilty?

Well, of something, the answer is almost certainly yes. However, if we confine ourselves to the question of his second impeachment, and whether the Senate will find him guilty, that is far from certain.

It is pretty clear the Republican leadership would give a great deal to be rid of ex-President Trump. He has shifted the strategy of the party to focus on a nationalist, nativist, and white supremacist base that may be difficult to transform into a reliable majority vote even with the various Republican biases of the existing system. In the immediate aftermath of 6 January sentiment was running high and a strong impetus toward impeachment ran through both parties.

As time has gone by, however, a very loud cohort of the Trump base have started threatening to “primary”, if not hang, anyone who fails to support the ex-president 100%. Mitch McConnell quickly jumped back into line as some of the more extreme Republican members of the House and Senate started to compete to outshine others in their loyalty to “Trumpism”. People like Ted Cruz, Marco Rubio and Josh Hawley, all seem to have their eyes set on 2024 and the 74m Trump voters they think will propel them to personal victory.

From a position of some optimism after 6 January, the brave talk of some Republican Congress men and women started to evaporate and conviction looked less and less likely.

However, this week there has been some great news. The ex-president is taking control of his own defence. The benefits of this were immediately apparent when Trump fired the lead of his legal team, a conservative and highly competent defence attorney called Butch Bowers. This resulted in a number of other lawyers in the team leaving, fired or resigned not clear.

Being fired by Trump as a lawyer is probably seen as a mixed blessing as you will not have to work with someone who is certain they know the law better than you and almost as certain is going to cut you on the fees. He is the kind of client you want a weekly fee payment with, if not daily.

Apparently, the Republican leadership are trying to convince the ex-president the strategy for impeachment should simply be that it is unconstitutional with him having left office. Trump, however, wants to rehash his bogus claims about a robbed election. The latter would certainly up the odds of him being convicted and the only thing that could make it certain is if he agreed to be a witness in his in own defence. If there was ever a need to claim the 5th Amendment, however, this would be it.

My heart would like a guilty verdict but my head thinks the republicans are still fixated on the Trump base which they think is transferable and manageable. I suspect they are wrong on both counts.

If I were one of the sensible Republican Senators I would condemn the whole trial as a sham and refuse to attend on the grounds that it would provide a spurious legitimacy to the whole business.

Obviously, I would be disappointed in the result if enough of my colleagues thought the same and thereby opened the way to a two thirds majority of those in attendance finding the ex-president guilty. Further, I would rail on Fox news about the outrageous injustice of the subsequent decision to ban Mr Trump from ever holding office again.

I would then go home and breathe an enormous sigh of relief before I got on with the job or trying to rebuild a credible Republican party committed to democratic values.

by

GameStop, Short Selling and the “Roaring ’20’s”.

As we enter what some are predicting will be a new Roaring ’20’s, as economies “bounce back” from CovEcon-19, it is instructive to look back to the original “Roaring ’20’s”. As now during the second decade of the 20th Century short selling was one of the sophisticated financial products individuals could speculate with.

If you have not come across short selling it is a kind of financial alchemy that transforms base metal, failing companies into sources of golden profit. This process of transmogrification has the following 3 basic steps.

Step 1 You “borrow” a share in the base company (Base Co) paying a rental fee for it for a fixed period of, say, six months. Assume for this example that the stock market value for a share in Base Co. is £100 when you borrow it. Also assume you pay rent at £0.50p per month for the 6 months therefore total cost of borrowing the share is £3.

Step 2 Immediately sell the share you have borrowed for £100. Now you have cash £100 but no shares, an obligation to pay £3 in rent and to return the share in six months.

Step 3 At the end of the six month period buy a share in Base Co at the prevailing stock market price. This step is where the magic happens… you hope.

What you hope is that the share price will have gone down in the course of the six months so that you can buy the share at less than it was worth when you borrowed and sold it.

Assume you are a clever alchemist and the share at the end of six months has halved in value and therefore only costs £50 to buy. In these circumstances you have made a profit of £47 which is arrived at as follows:    £100 – (£50+£3) = £47 Result “Happy Days!”

Of course, you might be a poor alchemist in which case the value of the share you have to purchase at the end of 6 months may have gone up to say £150. Now you are down on the deal:  £100 – (£150 + £3) =  -£53  Result “Ouch!”

If the share price remains at £100 for the six months you have to go into the market and buy them at that price to give them back so you are £3 down on the deal.

Of course you may have increased your investment in this process by borrowing money and buying more shares. This increases your profit but also your loss depending on whether you are a good or bad alchemist. This has the effect of changing the “Ouch!” into an “Aagh!” and the “Happy Days” into “Yipee aye ay”

“Isn’t all this just like gambling? What commercial benefit does it produce in the real economy?” I hear you ask. My instinct is the answers are “yes” and “none”. If that all sounds on the shady side, consider the following.

Between, September 23 and November 4 in 1929 a Mr AH Wiggins, variously President, Chairman of the board and Chairman of the governing board of the Chase bank on Wall Street short sold 42,506 shares of the bank he was the President, Chairman etc of. He was a successful alchemist as he borrowed and sold ahead of the Wall Street crash and purchased and returned when the shares had fallen significantly in price.

As Chase bank’s shares continued to tumble he acquired another 43,506 of Chase shares from an affiliate of the bank, partly financed by a $6.6m loan from his employer – Chase bank! As the bank’s shares continued to collapse he again repurchased at a much reduced price and made a $4m profit on the transactions.

Mr Wiggins was later questioned about whether he felt it was right as a senior employee of the bank he should make a profit out of speculating in its shares using money loaned to him by the bank. Mr Wiggins answer was that by lending the money to employees and allowing them to speculate in its shares the bank was encouraging its staff to have an “interest” in the company.

When asked whether short selling created the right kind of “interest” in the company he thought it doubtful!

Mr Wiggins story is recounted in JK Galbraith’s incisive and witty analysis of “The Great Crash of 1929”. Reading it you see haw egregious practices of the past have been replaced by egregious practices of the present. The parallels with both 2008 and now are instructive.

The Roaring Twenties were a period of excess with growing inequality, enormous optimism about the benefits of capitalism and the rejection of the need for red tape regulation. If we do have an economic bounce back we just need to remember how those Roaring Twenties ended. We should try not to fall into the same trap.

Whilst there are far more regulatory conditions to be met on short selling now as compared with the original Roaring ‘20’s, the question has to be asked why is it allowed to take place at all? What is the commercial benefit in the real economy?

On the negative side, it certainly does not help target companies if large hedge funds are gambling against their success or even survival. Also it creates “immoral hazard” in that powerful financial interests have a strong motive to undermine the company in whatever way they can and certainly have no interest in its success.

I would welcome explanations of the benefits of short selling. I suppose Schumpeterian capitalists may see short selling as a way to weed out the weak quicker than normal share sales. It perhaps provides a hedging mechanism for large funds to manage their risk exposure to moves in the market.

However, to the extent that large enough funds may be able to create a self-fulfilling prophesy it starts to look like a one way bet which may destroy perfectly good companies who are experiencing a difficult patch.

Short selling looks more like it operates for the participants who play casino capitalism rather than those looking to ensure the efficient allocation of investment. For Wall Street over Main Street.

The events around GameStop shares and Robinhood’s purported desire to democratise finance gives a poke in the eye to the Goliath hedge fund managers and their short selling activities. It is difficult not to derive a certain satisfaction from this. However, it is probably not the best way to reign in value destroying speculation.

The thousands of day traders who have bought the shares of GameStop at over inflated prices are clearly not looking to make money, they are looking to take revenge on those powers which seem to determine much of their future and face little if any risk themselves. I suspect in the mix are a number of very savvy investors who are making money on the upward price of the shares.

The motives of many who are participating in this action are definitely on the money, even if their money is not. The financialisation of the economy has gone on for far too long. Reform is needed and effective regulation of Wall Street must be a part of this. Only the state can ultimately achieve an economic environment driven by values which works for the many and not just the few. The Biden administration has a lot on its plate but this needs to be addressed if the despair that fuels anger and division is to be overcome and unity achieved.