How Romney Achieved the Impossible

I'm trying to think if there is a precedent for the disaster that was Mitt Romney's little tour abroad -- culminating in a press aide's obscene explosion at the traveling press in Poland on Tuesday -- and it's really hard to come up with anything. Perhaps the closest comparison is his dad George's trip to Vietnam in 1965, which prompted the elder Romney to tell a reporter two years later, as he began running for president, that he'd been "brainwashed" by U.S. generals, thus instantly dooming his candidacy. The consummate irony is not that son may be following father, but that Mitt has spent a good part of his political career trying to avoid the mistakes his father made, as his biographers Michael Kranish and Scott Helman have written.

Which makes the mistakes of Mitt Romney on this trip even more mind-boggling. After the gaffes in London, I really didn't think it was possible that the Romney campaign would let their candidate look foolish in Israel. I even wrote a blog item saying all he had to do was smile for the cameras standing next to his dear friend Bibi Netanyahu in order to come out ahead with the critical Jewish voter bloc -- his real audience -- back home.

And yet the Romney-ites may have managed the nearly impossible task of actually losing Jewish votes on this trip, despite fielding a candidate who has a very close relationship with a popular Israeli prime minister, and who is running against a president whose stand on Israel is one of his chief weaknesses abroad (and with American Jews). The problem was not Romney's tough comments on Iran's nuclear program, which for the most part played well despite some give-and-take between him and his advisor. The problem was Romney's rambling speech at a fundraiser on Monday at which he slandered the Palestinians, completely unnecessarily, and displayed an almost Rick Perry-like obtuseness about the history and politics of the region.

It's not just that Romney oversimplifed historian David Landes's thesis about the importance of culture in economic success, as I wrote yesterday. Or that Romney, the supposed data whiz, got the per capita numbers comparing Israelis and Palestinians wildly wrong. It's that he got the Palestinians so totally wrong. I didn't think it was possible to generate much sympathy among American Jews--moderate, middle-of-the-road ones, that is-- for the Palestinian plight, but Romney seemed to manage to do it when he suggested that"culture makes all the difference" in explaining the "stark difference in economic vitality" between Israelis and Palestinians. 

Palestinian spokesman Saeb Erekat retorted that the Israeli occupation is a key reason for Palestinian economic backwardness, and anybody with even a vague idea of Mideast politics, Jew or Gentile, knows this to be true. But Romney's mistake goes even deeper. In truth, the Palestinians historically have had a very vibrant merchant culture, one that is fabled in the Arab world and second only, perhaps, to the Israelis'. So to denigrate their culture, even by implication, is only to show ignorance.

In the end, Mitt Romney's mistakes abroad may not add up to very much in the November election--certainly not anything like what happened to his father's hopes. But if Romney is sometimes described as robotic, he's now looking like a robot who's out of control. Republican functionaries had better start figuring out how to reprogram him -- fast.

Mitt's Continuing Muff-A-Thon

One would think that Dan Senor, of all of Mitt Romney’s advisers, would be the last one to get crossways with the candidate. Senor, like Romney, is a Harvard MBA and a successful Wall Streeter who has nimbly straddled the world of finance and politics, and whose somewhat hawkish, neoconservative views of the world are largely in accord with Romney’s.

And Senor, the former spokesman for President Bush’s Coalition Provisional Authority in Iraq, has been advising Romney for the better part of a year, at least informally, especially on the issues of Israel and Iran. Indeed, according to a senior Romney aide, Senor has been instrumental in pressing Romney to make President Obama’s alleged mistakes and weakness over the issue of Iran’s nuclear program a centerpiece of the candidate’s foreign-policy critique. 

So it is all the more striking that, after a gaffe-replete London trip that featured at least one big embarrassing mistake by another adviser, Romney and Senor still don’t seem to be entirely on the same page on Iran. Senor, briefing reporters on Sunday, indicated that Romney would back a unilateral strike on Iran by Israel. "If Israel has to take action on its own, in order to stop Iran from developing that capability the governor would respect that decision," he said. But Romney himself, speaking later to ABC News, appeared to pull back slightly from Senor’s characterization. “I think I’ll use my own terms in that regard and that is that I recognize the right of Israel to defend itself,” Romney said. Not a huge difference, but enough to be noticed. (Senor did not respond to an emailed request for comment.)

Earlier this month another adviser, Rich Williamson, building on Romney’s hard-line description of Russia as America’s “number one geopolitical foe,” mistakenly referred to Russia as the “Soviet Union.”

The question is: Why does this keep happening in Romneyland? Is it evidence of a chronically disorganized campaign – or, more likely, do these mishaps reveal a candidate whose views keep evolving and are simply hard to pin down, even for his aides? Even Eric Fehrnstrom, one of Romney's longest-serving and most loyal aides, seems to be having trouble keeping up with Morphing Mitt. After the Supreme Court upheld Obama’s health care plan in early July, Fehrnstrom flatly told MSNBC that it was "correct" to say that Romney doesn't believe the individual mandate penalty is a "tax." But  a few days later, Romney told CBS that because the Supreme Court majority had concluded the penalty was a tax, he himself had to call it a tax too. "They have spoken," he said. "Therefore it is a tax." (Even though Romney plainly said he disagreed with the majority on just about everything else.)

What happened there? It was no accident that, in the days between Fehrnstrom’s comments and Romney’s, the GOP leadership on Capitol Hill laid out the new Republican orthodoxy on the Supreme Court decision. Senate Minority Leader Mitch McConnell, House Speaker John Boehner and other Republicans were all accusing Obama of, in effect, imposing a middle-class tax increase with Obamacare. So Romney had to choose, in effect, between Fehrnstrom and his party’s chief ideologues. Not a tough choice for a candidate who spent most of the primary season catching up with a party base that was vastly farther right than it had been as recently as his 2008 campaign.

And then there was the gaffe that augured Romney’s Whiff-a-thon in London, when an anonymous adviser told the Guardian newspaper that Romney felt the U.S.-British relationship was special because "we are part of an Anglo-Saxon heritage.”

Though Romney later disavowed the comment, it seemed to accurately reflect what, for Romney, is a culture-centered view of the world. In remarks on Monday at a fundraiser in Israel, Romney again invoked a favorite, formative book called The Wealth And Poverty of Nations, by retired Harvard scholar David Landes. Romney said that Landes’ “life-long analysis” of civilization showed that “culture makes all the difference.” Then he repeated himself: “Culture makes all the difference.” Romney was referring what he described as the “stark difference in economic vitality” between Israel and the Palestinian Authority, and between other neighboring nations such as the United States and Mexico. 

Once again, as he did in London, Romney seemed to have succeeded in insulting far more people than he actually won over, with the negative headlines dominating. "It is a racist statement and this man doesn't realize that the Palestinian economy cannot reach its potential because there is an Israeli occupation," said Saeb Erekat, a senior aide to Palestinian President Mahmoud Abbas.

Interestingly, even David Landes doesn’t appear to agree with his most noted reader. Though Landes is disabled by a stroke and could not come to the phone, his daughter Alison noted in an interview with National Journal that her father’s book is “more nuanced” than simply a statement of the superiority of culture (and Landes focuses mainly on European history anyway). At one point in his book, Landes also focuses on the importance of geography, which he says “tells an unpleasant truth, namely, that nature like life is unfair, unequal in its favors; further, that nature's unfairness is not easily remedied.”

As the Palestinians would tell you.

Alienated America

My essay in the new magazine supplement "The Next America" asks whether disgust with our institutions is reaching historic levels, and maybe even harks back to what happened 236 years ago:

Every July 4, Americans gather to celebrate an act of alienation. It’s true.

When you move beyond the grand opening words of the Declaration of Independence, you see what really motivated the Founders to stake their “lives, fortunes and sacred honor.” They were royally ticked off. The Declaration’s long list of grievances against King George III seethes with a sense of injustice: “He has refused ... He has abdicated … He has plundered …” Thomas Jefferson and Co. believed they no longer had a national government connected to them in any way, except for the purpose of exploiting and abusing them.

Although there are no revolutionary movements afoot in America today (beyond a few crazed militias), it is perhaps not too far-fetched to wonder whether history is starting to repeat itself—or at least sending off warning flares in our direction. Americans are growing more and more alienated from the institutions the Founders created but that many of us no longer feel represent us or our values very well. In other words, our sense of alienation itself is becoming institutionalized. And that seems to be the case also among a demographically changing population of the Next America, people who feel less ethnic kinship to the WASPs who founded the country.

Worst of all, because some of these institutions are so broken, the alienation is only growing. Consider immigration, which wasn’t much of an issue during the Revolution (although a few Founders were immigrants themselves), but is front and center for many people in the Next America, especially Latinos. From the Supreme Court to the White House to Congress, our elected and appointed officeholders have failed to arrive at anything like a consensus on basic-but-critical questions.

Is deciding immigration policy more a state’s right, as Mitt Romney and dissenting Supreme Court Justice Antonin Scalia say, or is it a federal one, as a majority of five justices seems to have finally affirmed in late June?

What should be the fate of the children of illegal immigrants, especially after they’ve grown up here? Last month, after years of inconclusive dickering with Congress, President Obama decided unilaterally to permit hundreds of thousands of these immigrants to remain in the country. He was immediately attacked by Republicans, many of whom seem to prefer avoiding the issue.

Perhaps it is no surprise that, according to a new Gallup poll, confidence in every major government institution is near historically low numbers, with Congress scraping bottom.

For several of these institutions, especially Congress, these numbers have steadily dropped to historic lows since such Gallup surveys were first taken in the 1970s. Congress never earned more than 50 percent approval (unless one includes those who said they have “some” confidence in it); but for most of the 1970s and ’80s, the percentage of those who said they had “a great deal” or “quite a lot” of confidence was regularly in the 30s and 40s before descending into the 20s during the 1990s, as today’s era of no-prisoners partisanship began. Nonwhites are slightly less disgusted than whites with the presidency and Congress, but the latest numbers show that their support is dropping too, despite the presence of the first African-American in the White House.

Those in power—our still largely white-majority leaders in Washington—ignore the growing alienation of this new America at the nation’s peril. While our politicians are paralyzed, our nation faces a period of sputtering growth and stalemate over economic philosophy. It also is demonstrating an inability to take care of several cast-off generations of “left-behind” workers and to educate a new generation of workers for the rigors of an ever more intense global competition.

All this suggests that the American Dream that sustained more than two centuries of progress needs revitalizing.

Sadly, the solutions are before us, and they too go back to the Founders. As Michael Lind writes in his brilliant new book, Land of Promise, before the American Revolution, our British overlords were determined to subordinate the colonies as a permanent satellite agricultural economy. But after the war, Lind writes, Alexander Hamilton saw a way forward: use the newly empowered national government to foster nascent industries. Hamilton’s chief sponsor, President Washington, spurned his own agricultural philosophy to embrace this well-balanced policy of mercantilism.

These ideas, also identified with the Whigs of the 19th century, have found a home in the ideologies of both the Obama administration and such (relatively) enlightened Republicans as Gov. Mitch Daniels of Indiana. Both want to attack the deficit to free funds for national reinvestment. Both want to reorient tax policies toward production rather than consumption. Both want an equitable solution to illegal immigration.

And both want to revive a proud leitmotif that characterized government policy from the 19th century at least through the Eisenhower administration: keeping budgets as lean as possible while developing the nation’s infrastructure and education systems.

Yet, politically, we seem unable to arrive at anything close to such a consensus today. Our institutions and our politics, in their fecklessness, sometimes recall the arrogance of the British Crown and Parliament as they enacted one stupid law after another (beginning with the Stamp Act through the “Coercive Acts”) before the culminating events of 1776. “The pride and vanity [of the British] is a disease; it is a delirium,” John Adams later wrote.

Are the beneficiaries of Adams’s handiwork, our men and women in Washington, suffering from a similar delirium, one that has kept them from embracing the realities of the Next America? I fear so.

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The Rising Tide Against the Big Banks

The financial catastrophe of 2007-08 has caused a few people to change their minds about Wall Street—too few, in the eyes of many critics. But no transformation is more dramatic or complete than that of Sanford I. Weill, the founder of Citigroup who once proudly hung a sign in his office that read: “The Shatterer of Glass-Steagall.” 

On Wednesday, Weill appeared to undergo the Wall Street equivalent of a conversion on the road to Damascus, renouncing the views on which he had built his entire career. It was Weill, known as the premier deal-maker on Wall Street, who more than a decade ago turned Citigroup into a giant financial supermarket, a mega-bank that grew so complex its own executives later confessed they no longer understood the businesses they oversaw.  It was Weill who hired former Treasury Secretary Robert Rubin in 1999 to ensure that the Glass-Steagall Act, which separated investment from commercial banking, would be repealed by Congress later that year. As Weill wrote later in his memoir, The Real Deal, having Rubin on board “translated into a highly visible public endorsement.”

Now Weill thinks the Street should go in the opposite direction – away from “too much concentration” – in order to maintain America’s lead in the world of finance. “What we should probably do is go and split up investment banking from banking, have banks be deposit takers, have banks make commercial loans and real estate loans, have banks do something that’s not going to risk the taxpayer dollars, that’s not too big to fail,” Weill told CNBC’s “Squawk Box.”   

Weill is only the latest voice to come out against the “too-big-to-fail” problem in banking in recent weeks, a trend that has been quickened by the ongoing scandal over revelations that the big global banks had manipulated Libor—the London Interbank Offered Rate, a central benchmark that banks use to set rates for lending to each other.

In the Financial Times, columnist Sebastian Mallaby, invoking the trust-busting era of Teddy Roosevelt, wrote recently that the scandal shows that "modern banks are worse than the rail and oil conglomerates of yesteryear … They must be broken up.”

Similar sentiments have been rising on the right as well as the left. “A relatively open secret on Wall Street is that the megabanks that survived the financial crisis — JP Morgan, Citigroup, Bank of America, Goldman Sachs, Morgan Stanley, and Wells Fargo — are still very much protected by the federal government and the American taxpayer,” Charles Gasparino wrote in the right-leaning New York Post on Tuesday.

In the neoconservative Weekly Standard, Irwin Stelzer asked why Mitt Romney, who knows the issues as well as anyone because he ran Bain Capital, isn't calling for breakup of the banks himself. "They are too big to fail, and too complicated to regulate. So where is he when economists say that the better alternative is not more of the failed policies of the Obama years—regulating the unregulatable, bailing out when all else fails —but breaking up the big banks? Not for vulgar populist reasons, but to improve the functioning of the capital markets."

The issue is potentially embarrassing for President Obama and his Treasury secretary, Tim Geithner, who has consistently held out against the breakup of the banks.  On Wednesday, Geithner began defending himself in congressional testimony against accusations that he did not do enough to stop the manipulation of Libor when he was head of the Federal Reserve Bank of New York. 

What worries regulators is that the trends plainly show that the big banks are getting bigger, and there is little to restrain them, beyond a host of as-yet-unwritten "living wills" that are supposed to tell regulators how to liquidate the giant firms  in a crisis. And the largest surviving banks are beginning to push out smaller banks in important areas, having increased their overall market shares in deposits, mortgages, credit cards, home-equity loans, and small-business loans. 

As a result, the big Wall Street firms are only getting harder to unwind in a crisis, harder to comprehend, and as former TARP inspector general Neil Barofsky told National Journal on Monday, harder to bring to justice, no matter what all the new Dodd-Frank rules say. “This goes to the bigger problem of too-big-to-fail,” Barofsky said. “Because you can’t indict one of these banks. You can’t bring an indictment that would bring down our entire financial system.”

According to Federal Reserve officials quoted by Bloomberg last spring, five banks – JPMorgan Chase, Citigroup, Bank of America, Wells Fargo, and Goldman Sachs – now hold assets equal to more than half the size of the entire U.S. economy ($8.5 trillion or 56 percent). That's vastly larger than the proportion controlled by these same banks before the financial crisis (43 percent). The banking behemoths are now about twice as big as they were a decade ago.

The Dodd-Frank law was signed two years ago this week, prompting President Obama to declare at the time: “No longer will we have companies that are, quote unquote, too big to fail.” But the trends have gone the opposite way in the ensuing period. In fact, the positions of the five banks most central to the crisis have been consolidated, said a former Treasury official who opposed many provisions of Dodd-Frank.

Perhaps the biggest irony, he said, is that in an era when regulators wanted to get rid of government-sponsored enterprises – such as Fannie Mae and Freddie Mac, the huge lending institutions that had built-in government guarantees, no matter how risky their behavior – the new rules may have effectively created more of them.  

A Ghost Haunting Obama Named Barofsky

Neil Barofsky is not the sort of guy you want popping up in a tight election race, not if you’re Barack Obama.

That's first because Barofsky is an all-too-credible critic of the Obama administration’s lopsided approach to the economy, which included throwing enormous resources into bucking up big banks and then allowing them to grow even bigger while slighting the underwater homeowners whose plight has weighed down the recovery on which the president's reelection probably depends. Second, it's because Barofsky is out there trying to sell a new book — Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street — which offers a devastating indictment of Obama’s team, especially his Treasury secretary, Tim Geithner.  

According to Barofsky, the former inspector general in charge of overseeing the $700 billion Troubled Asset Relief Program, the current scandal over the banks’ manipulation of Libor — the London Interbank Offered Rate, one of the most important benchmarks in the world since banks use it to set rates for lending to each other — is just more evidence that Wall Street’s biggest banks have further captured the financial system on Obama’s watch. And no one can do anything about it, unless they are broken up. 

“This goes to the bigger problem of 'too big to fail,' ” Barofsky said in an interview. “Because you can’t indict one of these banks. You can’t bring an indictment that would bring down our entire financial system.”

Beyond that, says Barofsky, the response of Geithner and the regulators to the Libor scandal runs an “incredible parallel” to their feckless attitude toward the misconduct of the banks in the administration’s Home Affordable Modification Program, or HAMP.  “Check a box, send an e-mail, but don’t do anything to address the problems,” he says. Barofsky was referring to official reports that, at the height of the financial crisis in 2008, British bank Barclays admitted to the New York Fed that it was booking artificially lower borrowing rates to help its bottom line and that Geithner, as the head of the New York Fed, sent an e-mail to the Bank of England about the problem, but without any apparent follow-up.

In more unwelcome election-year publicity for the administration, Geithner is expected to testify before the House and Senate banking committees this week about his response to the Libor scandal. In a recent appearance at a private conference, Geithner took credit for notifying the British and regulators at “a very early stage.”

"The United States, to its credit, set in motion at that stage a very, very powerful enforcement response, the first of which you've now seen," Geithner said last week at the CNBC Institutional Investor Delivering Alpha Conference in New York.

But Barofsky criticizes Geithner over “the conversation that didn’t happen,” which would have been “to call up the Department of Justice and say, ‘We just had a bank [Barclay’s] confess on tape to participating in a global conspiracy to fix the interest rate.’ Instead, the Department of Justice didn’t open a case until 2010.”

In the interim, Barofsky says, Geithner and other U.S. regulators conveyed to the market that the manipulation was not a serious matter to them, even basing their rescue programs and the bailout of AIG on what they had reason to suspect were artificially lowered Libor rates. This was done in an apparent effort to rescue the banks at all costs not only during the crisis, but after the worst of it had passed.

Barofsky is not alone in his criticism. Last week, Sheila Bair, the former head of the Federal Deposit Insurance Corp., also criticized Geithner and U.S. regulators. "Looking at those e-mails, it looks like they had pretty explicit notification of some very bad behavior, and I don't understand why they didn't investigate," she said.

It took nearly four years for penalties to be brought. Last month, Barclays agreed to pay $453 million in fines and penalties. CNBC reported on Monday that U.S. prosecutors and British investigators are also close to bringing charges against some traders who manipulated interest rates.

As with Libor, the banking industry’s abuse of the HAMP program is well documented, as is the administration’s failure to curb those abuses. For the most part, Treasury simply stood by while the banks strung along thousands of mortgage holders, promising “modification” of their loan terms that never happened and sending them needlessly into deeper debt. The administration also fretted over the “moral hazard” of helping reckless homeowners, though in more cases than not those homeowners had been led on by securities firms manipulating the mortgage bubble, and the administration had long since stopped worrying about the moral hazard of bailing out too-big-to-fail banks. In particular, Geithner and Obama’s chief economic adviser, Larry Summers, avoided pushing for a "cramdown," which would have allowed federal bankruptcy judges to force banks to reduce mortgage balances, cut interest rates, and lengthen the terms of loans to help borrowers get out of trouble. Even Obama's own housing secretary, Shaun Donovan, later told National Journal that that was a "missed opportunity."

And in the end, the administration used only a fraction of the total amount of rescue money allocated under TARP to help underwater homeowners. “They had $250 billion, allocated, that they could use without a single vote in Congress. And they gave it back,” says Barofsky. “People need to be held accountable.”

Perhaps some of them will be -- on Nov. 6.

Asked to respond to the criticisms in Barofsky’s book, a Treasury spokesman said only, “We haven’t seen the book, but we wish Mr. Barofsky well.”

Romney: The Man without A Past

Mitt Romney has an identity problem. He's running for president by making promises about the future, but as a man largely without a past. Not only has Romney renounced many of his previous positions—on abortion, immigration, gun control, climate change, and the individual mandate he once championed as Massachusetts governor. He also refuses to divulge many details about what even he has said is his main qualification for the White House in a faltering economy: his successful career in “private equity” from 1984 to 1999 (or thereabouts).

What is it about the private equity world that Romney doesn’t appear eager to bring up? As I explain in an article in the current issue of National Journal, “Mystery Man,”  Romney was basically what used to be known as a “barbarian at the gate.” The term “private equity” sounds respectable, but it is a euphemism for the old leveraged buyout deals we remember from the 1980s, the era of corporate raiders like T. Boone Pickens and Henry Kravis. After junk-bond king Michael Milken, who funded a lot of those takeovers, went to jail, the industry decided to rename itself in order to remove the taint.

This is Mitt Romney’s true world.  As the founder of Bain Capital, Romney became a brilliant LBO buccaneer who specialized in buying up firms by taking on a lot of debt, using the target firm as collateral, and then trying to make the firm profitable -- often by breaking it up or slashing jobs -- to the point where Bain and its investors could load up the firm with even more debt, which Bain would then use to pay itself off. That would ensure a profit for Bain investors whether or not the companies themselves succeeded in the long run. Often, burdened by all that debt, these bought-out companies did not succeed, costing thousands of jobs as they were downsized, sold off and shuttered. Other times they did phenomenally well, as in the case of Sports Authority and Domino’s Pizza.

But job creation is irrelevant to Bain’s business model, which is all about paying back investors. Nor does the long-term fate of the companies that private-equity firms buy up matter crucially to Bain’s bottom line (though of course success is better). The only real risk for Bain is that these companies fail to make enough initial profit in order to permit Bain to pile on more debt and extract a payout, so that it can make back its investment quickly.

Though he started off dabbling in less profitable “venture capital,” Romney quickly saw the high-return, low-risk potential of LBOs in the mid-1980s and ultimately was involved in about 100 such deals, which made him a true Wall Street tycoon. He then maximized his take further by socking away his gains in offshore shelters from Bermuda to the Caymans and using capital gains tax breaks and loopholes to reduce the rate of his 2010 tax return (the only one he’s released) to 13.9 percent, a far lower rate than the one paid by middle-class Americans. Many of Wall Street’s big dealmakers do the same with their profits, employing whole teams of international tax accountants.

But none of these dealmakers has ever run for president. This is perhaps the main reason for Romney’s reticence: It’s not just that being honest about Bain’s real business pulls back the veil from the ugly heart of financial capitalism. It’s also that this may be the hardest year since 1932 for a Wall Street big-shot to make a bid for the White House: The former Masters of the Universe remain unpopular because of the historic recession they did so much to create. So it’s hardly a surprise that Romney won’t dwell on practices that his onetime GOP primary opponent, Texas Gov. Rick Perry, labeled “vulture” capitalism.

None of this is necessarily disqualifying for a presidential candidate; on the contrary. Americans have always admired business success, no matter what package it comes in. It is part of the nation’s lore going back to the rags-to-riches tales of Horatio Alger and F. Scott Fitzgerald, and the storied careers of Andrew Carnegie and J.P. Morgan. Romney is undoubtedly one of the most successful capitalists ever to run for president. Based on his record at Bain, as governor, and at the Olympics, there is little doubt that he is a numbers whiz who is handy with a budget, and America has serious budget problems. “At the end of the day, people are going to know Mitt Romney was a super-successful businessman, and they’re going to factor that in,” says Vin Weber, a senior Romney advisor. “And most people will find that attractive and not negative.”

Maybe so. But as the Obama attacks persist, even some in the Romney camp fret that they are watching a Democratic version of the kind of attacks that permanently defined Michael Dukakis as weak in 1988 and “Swift-boated” an unresponsive John Kerry in 2004. Could Romney end up being defined as a hard-hearted moneybags? “That worries me a little bit,” Weber admits.

The Obama attacks also may be resonating because they compound an image of aloofness, of detachment from the lives of ordinary Americans, which has dogged Romney for many years. He is hardly the first rich man to run for president, yet he lacks the populist touch of previous successful candidates. Franklin Delano Roosevelt also came from a wealthy patrician family, but by the time he ran for president as a polio victim who had suffered among the people in Warm Springs, Ga., FDR had reputation for transcending that background. So did John F. Kennedy, whose father’s vast but somewhat shady Wall Street fortune financed a rich-kid bid for Congress, the Senate, and then the presidency. But JFK’s charisma and war-hero reputation, and his ability to connect with people—for example, by famously telling a hushed crowd of mothers who had lost sons in World War II that “I think I know how you mothers feel, because my mother is a Gold Star mother too”—made him a popular figure.

Not so Romney. His record contains few such man-of-the-people moments (ironically, his best argument may be his successful health care law in Massachusetts, another thing he doesn’t want to talk about). And his uncommon Mormon religion, about which he is also reticent, further contributes to the image of a Man Hard to Know. This is the same Romney who declared during the hard-knocking primaries that the $350,000 he earned in speaking fees wasn’t a lot of money, who said that his wife drives a “couple of Cadillacs,” who grinningly bet Rick Perry $10,000 on a whim, and who boasted that even wealthy Ted Kennedy had to “take a mortgage out” to beat him. And those are moments when Romney was trying to be one of the guys. What has become clear is that he is part of a world of super-elites who live in a universe apart from most Americans.

Romney may well make a very good president. But we should know who we’re getting.

Yes, Romney's A 'Barbarian at the Gate'--But Should He Be Ashamed of That?

Since the giant bank bailout and historic recession set off by the Crash of 2007-08, experts have increasingly wondered whether all the "financial engineering" out of Wall Street  adds any overall value to the economy. Or whether, on the other hand, all this financial "innovation" -- super-complex derivatives, credit default swaps and such -- is mainly just a clever way for a few fat-cats to get rich together, usually at the public's expense. According to some studies, the costs of repeated bailouts and downturns triggered by Wall Street manias are so great that they add up to far more over the long run than any added value brought by Wall Street. Among those leading the charge against fancy finance is former Fed Chairman Paul Volcker, who said back in 2009 that he had not found one "shred of neutral evidence" that tied financial innovation to "the growth of the economy."

A microcosm of this debate is occurring over the sort of financial engineering that was Mitt Romney's specialty: the "private equity" business. The term "private equity" sounds respectable enough, but it is really just a euphemism for the old leveraged buyout deals we remember from the 1980s, the barbarians-at-the-gate era of corporate raiders like T. Boone Pickens and Henry Kravis. After junk-bond king Michael Milken, who funded a lot of those takeovers, went to jail, the industry decided to rename itself in order to remove the taint.

This is Mitt Romney's true world, as I write in a forthcoming article in National Journal.  Romney was a brilliant LBO buccaneer who specialized in buying up firms by taking on a lot of debt, using the target firm as collateral. He would then try to make the firm profitable, sometimes by breaking it up or slashing  jobs, to the point where Bain and its investors could leverage up further--get banks to lend them more, in other words-- and quickly pay themselves off out of that new debt. That would ensure a profit for Bain investors whether or not the companies themselves succeeded in the long run. Often, burdened by all that debt, these bought-out companies did not succeed, costing thousands of jobs as they were downsized, sold off and shuttered. Other times they did very well, as in the case of Sports Authority and Domino's Pizza. But those outcomes--and certainly overall job creation--mattered little to Bain's business model, which was all about paying back investors.

These tactics made Mitt Romney one of the richest men ever to run for president. And for decades, Wall Street has sold this business model to companies--and the public--the way Gordon Gekko once did in the movie Wall Street. "Greed is good," Gekko famously said, because he and his fellow corporate raiders make the businesses they take over more efficient.  "I am not a destroyer of companies. I am a liberator of them!" Gekko says. Romney has said similar things on the campaign trail, claiming to have rescued failing companies and created tens of thousands of jobs.

But here's something closer to reality: In a paper published by the National Bureau of Economic Research in 2008, Stanford economists Phillip Leslie and Paul Oyer concluded that there is "little evidence" that companies taken over by private-equity firms like Bain "outperform public firms in profitability or operational efficiency." Those results, the authors conclude, "raise questions about the value created by private equity." In other words, the kinds of deals Bain and other corporate raiders engage in may amount to ... just more financial engineering.

That doesn't mean Bain Capital added no value to the overall U.S. economy--it certainly did. Romney started Bain from nothing and turned it into a respected giant of the private-equity industry, with  total assets under management amounting to about $65 billion today. Bain has enriched its many loyal investors, including pension funds and college endowments. But the question of how Bain really did this  goes to the heart of Romney's seeming inability, on the campaign trail, to cite any reliable data about how many jobs Bain created, or even to make a persuasive case that he has helped to create, more broadly, wealth for the U.S. economy.  

To be sure, as one of the most successful capitalists ever to run for president, Romney still has a good argument to make to the American people: not only did he create wealth for his investors, he's clearly a numbers whiz who's handy with a budget, as he proved in doing about 100 deals with Bain. But he's not going to make that case well unless he talks more forthrightly about the kind of business he really was in. Truth is, no one knows how many jobs are created by private-equity firms, because no one in the business cares: it's an irrelevant data point

The LBO business, euphemized as private equity, is still not very pretty. At Bain, Romney was "a very effective leader--a very effective leader of a bunch of sharks," says Liaquat Ahamed, author of the Pulitzer Prize-winning book Lords of Finance. Romney, of course, wouldn't put it that way, but he doesn't have to. According to David Rosenbloom, a well-known tax attorney and the former international tax counsel at the Treasury Department, Romney could explain his business history "pretty straightforwardly: Bain Capital creates wealth, not jobs. But the guy never really says the common-sense, obvious answer to things."

Perhaps he feels he doesn't need to, with the latest polls showing that President Obama is losing more ground in his favorable ratings, especially on the question of who can best manage the economy. But by remaining largely silent, or glossing over Bain's true business, Romney is taking a big risk of allowing himself to be negatively defined by the Obama campaign, in much the same way the Republicans painted an unresponsive John Kerry as a vacillating wimp in 2004, and an equally flummoxed Michael Dukakis as weak on crime in 1988. In what is still a deadlocked election, can Romney afford that?

Rage of the Elites: The New Anti-Wall Streeters

The Occupy Wall Street movement has all but died--at least in the headlines--but in recent weeks more and more mainstream elites have come out against the excesses of the financial giants, reviving the impulse to break up the big banks. In the Financial Times, Sebastian Mallaby wrote last week that given the revelations about how the financial giants manipulated Libor, it's time "to consider a more radical approach." Invoking a trust-busting Teddy Roosevelt, he writes: "Modern banks are worse than the rail and oil conglomerates of yesteryear. They must be broken up."

Mallaby echoes the conclusions of a 2010 paper by Andrew Haldane, head of the Bank of England’s financial-stability department, who showed that the financial crisis of 2008-09 produced an output loss equivalent to between $60 trillion and $200 trillion for the world economy. What that means is that overall, our unrestrained financial sector does not add any net benefit to the economy—its repeated crises cost us far more than Wall Street brings to overall economic growth.

In the neoconservative Weekly Standard, Irwin Stelzer today asks why Mitt Romney, who knows the issues as well as anyone because he ran Bain Capital, isn't calling for breakup of the banks himself. "They are too big to fail, and too complicated to regulate. So where is he when economists say that the better alternative is not more of the failed policies of the Obama years—regulating the unregulatable, bailing out when all else fails —but breaking up the big banks? Not for vulgar populist reasons, but to improve the functioning of the capital markets."

Welcome to the club, guys. It is indeed past time to revive this debate. All this echoes what I wrote, most recently, in May, after the disclosure that even sainted Jamie Dimon and his J.P. Morgan don't really understand what their traders are up to: 

1.) An even bigger problem than Too-Big-to-Fail  is Too Big to Understand. WE CAN'T KEEP UP WITH WHAT THE BANKS ARE DOING, FOLKS. Even they can't -- even the smartest of them, like arrogant old Jamie. The beauty of something like Glass-Steagall was that it solved that problem by ensuring that no matter how arcane trading got, the STRUCTURAL separation of risk-taking investment banks from federally insured commercial banking would do the job of protecting the system. Regulators, even in the best of times, are always going to be outpaced by the complexity and speed of markets. That's what's all but gone now, despite loophole-riddled Volcker Rule.

And 2.) As I wrote at length in Capital Offense, Wall Street and its lobbyists in Washington continue to pretend that finance works like other markets in goods and services. It doesn’t and never can.  In 1983, a young Stanford economist named Ben Bernanke published the first of a series of papers on the causes of the Great Depression. The financial system, Bernanke said, was not unlike the nation’s electrical grid. One malfunctioning transformer can bring down the whole system. (And, in fact, the deregulation of the electricity market later proved disastrous in states like California.) Bernanke showed that it was a broad-based collapse of the banking system that turned the postcrash downturn into the Great Depression. “I’ve never had a laissez-faire view of the financial markets,” Bernanke told me much later.  “Because they’re prone to failure.” Even Milton Friedman, at one point, praised the idea of depository insurance. It was a lesson that William Seidman, the head of the Resolution Trust Corporation that unwound the savings and loan crisis, later noted began with Adam Smith: “Banking is different. . . . Financial systems are not and probably never will be totally free-market systems.”

The work of Joe Stiglitz and others shows that market efficiency is undermined by imperfect information, and there is no market more governed by information than finance. Information is, in fact, the main “good” or “service” that financial markets purvey. As Yves Smith has pointed out in her book Econned, supply and demand don't even work the same way in finance. In normal macroeconomics, higher prices usually lead to reduced demand. In finance, higher asset prices usually lead to more lending, which in turn leads to more asset purchases. Before you know it, you have a mania and a bubble. Conversely, falling asset prices and credit contractions reinforce each other in a downward spiral. In other words, in financial markets there is no tendency toward equilibrium either on the way up or down. 

Finance is, by its nature, a dangerous beast. One that can't be domesticated and so must be caged.  

Some of the most brilliant and prescient work in this area was done by Hyman Minsky, an obscure economist at the University of California at Berkeley and Washington University who did more than anyone to flesh out Keynes’s vaguely stated skepticism about financial markets. Minsky’s “Financial Instability Hypothesis” held that success in financial markets always breeds its own instability. The longer a boom lasts, the less market players consider failure a possibility; as a result, careful borrowing, lending, and investment inevitably give way to recklessness and speculative euphoria. Margins and capital cushions come to be seen as unnecessary. At a certain watershed, or “Minsky moment,” as it came to be called, the foreordained collapse begins. The most speculative bets crash, loans are called in, asset values plunge, and the downward spiral feeds on itself.

Yet amid the free-market triumphalism of the post–Cold War era, all this hard-won wisdom about finance was forgotten or ignored. (An assessment of Minsky in 1997, a year after he died, concluded that his “work has not had a major influence in the macroeconomic discussions of the last thirty years.) It continued to be ignored even after the worst financial catastrophe since the Great Depression. 

And despite the latest proof of Wall Street's tendency to run amok on its own, the debate over regulation is still led by champions of revanchism like Jamie Dimon (and Mitt Romney). This is still the thinking that dominates Washington today. Can we have, at long last, a real debate about the recurring crisis generator that is Wall Street?

Why Romney Chose Darth Vader over Yoda

How much does it say about Mitt Romney that he opted to fly to Wyoming for a fund-raising dinner hosted by Dick Cheney on Thursday, having delegated his brother, Scott Romney (you know, the well-known ... sorry, who is he again?), to stand in for him at another fund-raiser in Connecticut the same day? The one featuring Henry Kissinger.

Uhhh, probably not all that much. Romney is trying to manage the difficult, if not impossible, task of uniting a fractious party composed of broken elements of the former George W. Bush administration, a still-vociferous neocon movement (what does it take to put those guys away, a silver stake?), a new tea party-dominated base and a fading but still deeply monied traditional GOP center. And let's be real, the exclusive Cheney event is $30,000 a couple, whereas the one in Stamford, Ct., is just $2,500 a plate (even though it's at the Trump Tower).

Still, there is a message about choices here. Despite Cheney's substantial responsibility for an eight-year record that most historians now agree may well add up to the worst presidency in American history -- a tenure so laden with debt and government overextension (especially abroad) that it probably did far more than Barack Obama to trigger the tea-party rebellion -- George W. Bush's vice president still commands respect and loyalty in the Republican Party. Henry Kissinger, by contrast, is a figure from the past--and the representative of a fissure in the GOP that goes all the way back to the proto-debate between moderate supporters of Cold War detente (Kissinger-Nixon) and the incipient neocon-Reaganite impulse to confront evil regimes.

In that debate the man who even now jokingly refers to his reputation as Darth Vader (Cheney) -- or at least his views-- prevailed over the brilliant diplomat and historian who, at a wizened 89, is seen as the Yoda of Republican foreign policy (Kissinger). And Mitt Romney has let us know, again and again, where his own foreign-policy views lie: with confrontation and regime change over Kissingerian realpolitik.

Whether the subject is Iran, Russia, China or even little Venezuela (whose buffoonish and ailing leader, Hugo Chavez, was labeled a serious national security threat by Romney yesterday), Romney has now fairly consistently embraced an ultra-hawkish, even neoconservative set of views across the globe. Despite a foreign-policy advisory team that runs the gamut from moderate to certifiable (John Bolton), it is clearer than ever to whom he is listening. He has chosen confrontation over detente. Cheney over Kissinger. Darth over Yoda.

And that is telling us more and more about what kind of a President Romney we can expect abroad as well as at home.   As is the case with his passionate dedication to repealing "Obamacare"--a goal of such overriding importance to him that he felt obliged to repeat it before a hostile NCAAP crowd on Wednesday -- Romney has barely, if at all, moved to the center in the more than three months since effectively securing the Republican nomination.

Romney said it best himself, perhaps, when after being booed at the NAACP -- in what my colleague Jackie Koszczuk observed was probably only just another ploy to appease his still-restive conservative base-- he declared proudly that "I want people to know what I stand for, and if I don't stand for what they want, go vote for someone else. That's just fine."

That seems to be just fine too with the Obama campaign, which is seeking to define Romney early in just this way--as too far right for the Oval Office.  Romney's cheerful night out with old Darth will help that effort. And something else is, perhaps, becoming a little bit clearer: one reason Obama is not yet an underdog, despite a historically bad economy, is that Romney hasn't done a very good job of persuading the country that he's the overdog, at least not yet. More of an overlord maybe.

 

Can Romney Really Lead?

It was one thing for Mitt Romney to pander to the GOP base while running in the primaries, as he took on a succession of would-be pretenders to the title of Great Red Hope. But now Romney is the presumptive nominee of his party--which makes him its leader, nominally--and yet he still seems to be jumping eagerly for the approval of his base, asking only for policy guidance along the lines of: "How high?" All of which raises an important question: If Romney is elected, who will really be running the country? Him, or Mitch McConnell or John Boehner?


And that's putting the matter conservatively--if you'll pardon the expression--since we know that McConnell and Boehner mainly serve as sock puppets for the GOP's tea-party-captured, Grover Norquist-terrorized base.


Consider: Eric Fehrnstrom is one of Romney's longest-serving and most loyal aides, as well as a physical and intellectual link to the candidate's Massachusetts governorship. By all accounts, he's very smart, and he knows all the talking points about the supposed differences between Obamacare and Romneycare. So when Fehrnstrom said flatly, as he did on MSNBC on Monday, that it was "correct" to say that Romney doesn't believe the individual mandate penalty is a "tax," we were obliged to conclude he was speaking for the candidate.


Hence, we are also obliged to conclude that Romney shifted his position when, a few days later, he told CBS that because the Supreme Court majority decision  had concluded the penalty was a tax, he himself had to call it a tax too. "They have spoken," he said. "Therefore it is a tax." Even though Romney disagreed with the majority on just about everything else.


Just as strikingly, in the same interview Romney rhetorically embraced the campaign line McConnell, Boehner and other Republicans had laid out on the Sunday talk shows, accusing Obama of, in effect, imposing a middle-class tax increase with Obamacare.
Here is Romney: "He said he wouldn't raise taxes on middle-income Americans, and not only did he raise the $500 billion that was already in the bill, it's now clear that his mandate, as described by the Supreme Court, is a tax," Romney said.


This almost precisely tracked what McConnell said on Fox News Sunday: "The Supreme Court, which has the final, says it is a tax. The tax is going to be levied 77 percent on Americans making less than $120,000 a year, so it's a middle class tax ...  increase."


In an article in late January, I asked whether a President Romney would end up "leading from behind," to invoke a favorite GOP talking point against Barack Obama:


"Can he be like Ronald Reagan, who kept his party marching behind him despite perceptions, by his second term, of having made serious compromises? Or will he end up more like a George H.W. Bush, who fatally offended the conservative electorate (which always mistrusted him) by raising taxes and triggering a third-party rebellion that cost him reelection?"

The answer to this question may be getting clearer.  It's hard to see how this candidate can lead his party when he remains in such an eager state of followership. Even in the best case, a Romney presidency would likely end up being divided against itself, with the new president's pragmatic impulses constantly at war with the base's ideological demands.  Just so we're all forewarned.          

Obama's Already Losing the Messaging War -- Again

With just over four months to go before the election, and Republicans ravening to make health care a frontline issue, the Obama campaign still appears to be pursuing a "wishful thinking" strategy. They are simply wishing that the Affordable Care Act, the president's signature domestic achievement, would go away now that the Supreme Court has delivered what they hope is a "final answer," to quote White House Chief of Staff Jacob Lew. "I don't think the American people want to have this debate again," Lew said on Fox News Sunday, reflecting the "let's move on" approach reported by National Journal's Major Garrett, among others. 

But the Republican Party clearly does intend to have this debate, all the way into November, and Lew's tepid talking-points are a warning sign that the White House is, yet again, surrendering the message war on a central issue that even Obama partisans admit was poorly marketed the first time around, before and after ACA was signed into law in 2010.

It's not that Republicans have a better message. Questioned on Fox News Sunday, Senate Minority Leader Mitch McConnell had no answer to give host Chris Wallace when the latter asked what the GOP would do about the 30 million uninsured. "That's not the issue," McConnell sputtered. Like Speaker John Boehner on another Sunday show, he indicated that the GOP clearly had no alternative "replace" plan of its own beyond what Boehner called a "common-sense, step by step approach."

Already ACA's opponents, with their flair for the simplistic, are aggressively portraying the Supreme Court justification of the individual mandate based on Congress' taxing powers as a furtive "middle-class tax increase" introduced by Obama. And as we have seen happen again and again--notably when Obama's 2009 stimulus plan was portrayed as runaway big government rather than what it mainly was, an effort to prevent a Depression--it is the GOP narrative that will sink in unless it is aggressively countered with a powerful marketing message.

A Pew Research Center study also recently concluded that the Democrats consistently failed to do this last time, saying "the language and framing of the issue favored by the [ACA] bill's Republican critics was far more prevalent in the news coverage." 

The opportunity to resell ACA exists. A new Reuters/Ipsos poll indicates that support for the law is rising since the Supreme Court decision. And as my former Newsweek colleague Geoffrey Cowley, one of the most astute health-care journalists in the country, points out, "polls consistently show that more Americans oppose the Affordable Care Act than support it--not because they've evaluated and rejected it but because they don't understand it."

Just as important, Obama really has no choice but to mount a selling job extraordinaire on the ACA. Beyond Joe Biden's somewhat tongue-in-cheek line--"Bin Laden is dead and General Motors is alive"--the president's campaign doesn't have much of a positive narrative to sell, especially on the economy. Indeed, it's something of a mystery why the Obamaites are so eager to return to that subject. At this point, based on the latest GDP growth numbers, he's likely to head into the fall with unemployment still above 8 percent, as it has been now for a record 41 months (it was 7.8 percent when Obama took office). 

As Cowley puts it: "If the president can use this week's court ruling to reassert his own gifts as a storyteller--and his supporters can spark the kind of social-media uprising that helped elect him--health care reform may yet have a chance." And so might Obama--for a second term.