Being on Wall Street Means Never Having to Say You're Sorry

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Over the weekend JPMorgan Chase, the world's largest bank, reportedly agreed to fork over $13 billion in what will be the world's largest corporate settlement. Although the penalty, in proportion to JPMorgan's multi-trillion-dollar balance sheet, will merely dampen its annual earnings, some commentators said they felt bad for CEO Jamie Dimon. Calling the not-yet-announced agreement a "shakedown," the Wall Street Journal opined: "Federal law enforcers are confiscating roughly half of a company's annual earnings for no other reason than because they can and because they want to appease their left-wing populist allies." The Washington Post, lamenting the "persecution" of Morgan, quibbled that the Justice Department should not be so "backward-looking" as to slap the bank "for allegedly misleading investors about the quality of [subprime] securities it marketed before the crash." After all, the editors said, "roughly 70 percent of the securities at issue were concocted not by JPMorgan but by two institutions, Bear Stearns and Washington Mutual, that it acquired in 2008" under government pressure.


Poor Jamie. We do feel his pain. But all this empathy misses the point. What the historic deal demonstrates, beyond any reasonable doubt, is that the biggest banks are so big today that almost no wrongdoing can threaten their existence. They have become, in effect, something close to sovereign powers. Yes, if you're a bigger power, like the United States, you can extract "tribute" from them occasionally, as the Romans used to do to vassal states. But you don't liquidate sovereign powers or put their officials in jail.


Consider the odd spectacle of Dimon reaching out like a potentate to Eric Holder, asking for a personal meeting in which the two of them could hash out the penalty in private. The head of a bank and the attorney general of the United States held, in other words, a kind of personal "summit" meeting. Such a pact would only have been possible if the government of the United States is itself afraid of disturbing the operations of the bank—and in fact Holder admitted just that back in March when he warned that the biggest banks have grown not only too big to fail, but too big to prosecute. (In testimony before the Senate Judiciary Committee, Holder delivered an implicit rebuke to his former Cabinet colleague, Treasury Secretary Timothy Geithner, who permitted Wall Street to resurrect itself in what is largely its former image.)


As MIT financial expert Simon Johnson, the former chief economist of the International Monetary Fund, observed, "If Dimon's bank didn't have $4 trillion in assets (measured using international accounting standards), but rather a much more moderate $250 billion or $500 billion, do you think he would have the same access?"


Dimon is apparently taking this deal as a large-scale cost of doing business, and he's still fighting Justice's demand that his bank admit some culpability or wrongdoing. Which is the same pattern we saw in previous cases with Goldman Sachs and others: in one case, against Citigroup in 2011, U.S. District Judge Jed Rakoff rebuked the Securities and Exchange Commission and refused to approve a $285 million settlement with the bank because the SEC failed to gain any admission of wrongdoing or liability. To his credit, Holder is reportedly still pursuing a criminal case against JPMorgan involving allegedly fraudulent mortgages in California; in previous instances, banks have successfully bargained for the dropping of criminal charges in exchange for substantial settlements.


But for those who are tut-tutting that poor JPMorgan is giving up some half its profits, consider these figures from Andrew Haldane, head of the Bank of England's financial-stability department. He wrote that the financial crisis of 2008-09 produced an output loss equivalent to between $60 trillion and $200 trillion for the world economy. Assuming that a financial crisis occurs every 20 years, the systemic levy needed to recoup these crisis costs would be in excess of $1.5 trillion per year, Haldane says. 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.


JPMorgan, in effect, is giving up what amounts to a medium-sized penalty fee so that it can perpetuate Wall Street's pattern of occasionally blowing up and costing the rest of society its pursuit of happiness. And despite crying now that 70 percent of the bad mortgages were accumulated by Bear Stearns and Washington Mutual—which the government pressed on Dimon in the heat of the crisis—in fact he made out very well. "He got a 'Jamie-deal' on both Bear (the U.S. government guaranteed $30 billion of mortgage assets) and WAMU (the FDIC put WAMU in bankruptcy and let JPMorgan buy it for peanuts)," says Jeff Connaughton, author of the book "The Payoff: Why Wall Street Always Wins." "So in some ways the fine is a belated increase in fair purchase price."


Dimon has often behaved like the latter-day potentate he is. In the years since the crash, no one has worked harder than Dimon to resurrect the debunked idea that Wall Street can regulate itself. He has publicly disparaged Paul Volcker, the legendary inflation-fighting Fed chief and namesake of President Obama's still-unimplemented "Volcker Rule," which prevents federally insured banks from acting like risky hedge funds. Volcker has taken to telling audiences in recent years that the big, complex trades earning billions for firms like JPMorgan Chase add little growth to the real economy, just as Haldane's paper concludes. And despite the evidence that not a single Wall Street CEO really understood the trades that would doom his firm in the months leading up to September 2008, JPMorgan and the other global banks have still sought to keep derivatives and swaps trading in the dark and out of regulatory control as much as possible, so as to keep their vast profit machine (which relied on a lack of transparency) going.


The latest deal? Just the cost of doing business.

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The Unbearable Lightness of Being Hillary

Reprinted from National Journal

In the innermost sanctum of Clintonland, it is difficult to imagine that Hillary and Bill, two of the savviest politicians in the country, are not pinching themselves to make sure that it's all real. Perhaps they're dancing a jig together, or knocking back shots and howling at the moon out of sheer, giddy joy at their good luck. (OK, Hillary's not howling, but Bill might be.) Or maybe they are just quietly kvelling over the latest turn of events.

Because the trend lines are unmistakable, and they're looking better all the time: If she wants to run in 2016, Hillary Rodham Clinton could have the easiest walk into the White House of any candidate in either party since, well, one has to go back a very long way. Maybe to Reagan in '84. LBJ in '64, or Eisenhower in '52, or even FDR in 1932, 1936 and 1940. The presidency is looking like it's hers to lose, more than ever.

The reasons are becoming more obvious with each passing crisis of Republicanism, but are even starker now in the wake of the GOP's embarrassing implosion over the shutdown and debt-ceiling fight. This is an opposition party in such a state of extreme dysfunction that talk of a third-party split in 2016 is almost irrelevant. Why would you need a third-party split to win—as Bill did, recall, cheating George H.W. Bush out of a second term in 1992 thanks to the Ross Perot candidacy—when the base and establishment of the GOP are no longer on speaking terms?

Remember when poor Mitt Romney, who even in the best of fettle was not a very smooth or relaxed guy, twisted himself into an unrecognizable pretzel to win over the base? When a man who'd been a fairly effective Massachusetts governor felt he had to disown his greatest achievement, universal health care, and virtually emasculate himself before the general election in order to triumph in the primaries, thus losing all credibility (or at least identity) by the fall? When Romney believed he had to out-Santorum Rick Santorum, the man once voted the second dumbest senator, and go even more conservative on immigration than not-ready-for-prime-time Rick "Oops" Perry?

Well, guess what, it's only gotten worse for reasonable Republicans who might have a shot at winning a general election against a popular Democratic nominee. Whatever rational, impressive candidate lays claim to the GOP nomination in 2016 -- say, the popular, newly trimmed-down but currently-all-too-moderate New Jersey governor, Chris Christie -- is now going to have to out-Cruz Ted Cruz. And that's just not possible. Finding a place to the right of Ted Cruz, as brazen a demagogue who has come along in American politics since Huey Long, is like reaching the edge of the Internet and then trying to go beyond. You can't do it. Nor would you want to try. Nor could you ever win a general election doing so.

Hillary, meanwhile, can cruise to the Democratic nomination. She is head and shoulders above any possible challenger, the polls consistently show. Yes, OK, we all said that before the 2008 campaign too, when suddenly a phenom named Barack Obama came along. But let's be real: The Obama candidacy was like a perfect storm, a hundred-year event, a freakish thing. Martin O'Malley is never going to be mistaken for a phenom. Nor is Andrew Cuomo. Joe Biden? Democrats love him, but he can't touch her either. And you can be sure the Clintons are not going to make the same mistakes they did in 2008, bypassing the smaller Democratic caucus states because they underestimated the Obama insurgency.

The demographic numbers tell a grim tale for any potential GOP candidate at the same time as they look like manna from electoral heaven for Hillary. The Republican Party, still in the grip of tea-party extremism, is more and more becoming the party of disaffected and aging white voters. Even many Republican strategists are conceding that no GOP presidential nominee can win that way. But the party is not building itself a bigger tent fast enough: Strapped down by House extremists who can't think beyond the demands of their scarlet-red districts, or beyond the next two years, the GOP is not likely to embrace immigration reform despite Marco Rubio's efforts, thus continuing to alienate the burgeoning Hispanic vote that so doomed Romney. As my colleague Ron Brownstein wrote recently: "Absent big GOP gains with minorities, [Clinton] could win, even comfortably, just by maintaining Obama's showing with whites … [But] the first 2016 polling instead has generally shown her trimming Obama's deficit among whites both nationally and in key states."

GOP strategists will say they're changing the rules, cutting the number of primary debates so the next Republican nominee is not subjected to the same "traveling circus" (as national chairman Reince Priebus called it) that Romney was. But that's not going to change the tenor of those debates, in which the candidates will have to outflank each other on the right. They also say, well, you'll see, the tea party movement is fading, or at least becoming more manageable. But it's not, as we saw when 144 Republicans in the House voted against the reopening of the government and extension of the debt ceiling Wednesday night, costing John Boehner the support of most of what used to be known as "his" caucus. More to the point, several of those who might be considered serious GOP 2016 contenders for the presidency also voted in favor of the first default in American history in order to stay in the tea party's good graces, including Paul Ryan, Cruz, Rubio and Rand Paul (supplying the first fodder for those Hillary 2016 attack ads). We'll no doubt see a resumption of GOP extremism in coming months when the two parties battle over spending cuts leading up to the next debt-ceiling deadline on Feb. 7. The tea party is still dictating terms to the GOP establishment, and those terms are just too conservative for the general electorate. And who is now the point man for the GOP in budget negotiations? Ryan.

Yes, Hillary has some vulnerabilities. There are still plenty of Clinton haters out there. John Kerry appears to be eclipsing her record as secretary of State already, and then there's Benghazi, which the Republicans will resurrect gleefully if she runs. But in truth the mistakes of Benghazi, which branded Clinton as the first secretary of State to lose an ambassador in the field since 1979, are not going to stand up to scrutiny. It's wild conspiracy theory, utterly unproven (in fact it's been disproven), to say that Clinton covered up what was known about the Benghazi attack. It won't work in 2016.

So, if she wants it, the broad center of American politics – and the White House—may well be Hillary Clinton's for the taking. We await her decision. But she and Bill must be feeling pretty good about it now. Maybe even a bit giddy.

How the Economists--and the Nobel Prize Committee--Are Still Failing Us

Who is more irrational: the tea party or the Nobel Prize committee? That's a pretty close call this week.

Tea party libertarians base much of their view of the world – and their current efforts to blow up Washington – on the simplistic idea that government is always bad and markets are always good. The more freedom, the better for all. The Nobel Prize committee effectively endorsed this concept on Monday by awarding the 2013 prize to the University of Chicago's Eugene Fama, whose "efficient markets hypothesis" was mocked even by the father of modern free-market economics, Milton Friedman, but which forms a fundamental justification of the world view that tea partiers, many of them unknowingly, live and breathe. That's the long-since debunked view that markets, especially financial markets, are always rational, so just let 'em rip. No regulation needed. No government needed.

So irrational was the Nobel decision that even the committee second-guessed itself; it simultaneously gave a piece of the 2013 award to Yale's Robert Shiller, whose life's work has sought to show that Fama's theory is "one of the most remarkable errors in the history of economic thought." (This is perhaps Stockholm's idea of what Wall Street calls a "hedge.")

Shiller has developed a field of "behavioral economics" fleshing out John Maynard Keynes's idea that irrational "animal spirits" drive markets more than policy-makers realize. If we needed any more proof of that, we got it in 2008, when we realized that virtually every Wall Street CEO and the biggest, most sophisticated banks in the world had no clue what they doing and would have destroyed themselves en masse had not the government (yes, the government) stepped in to save them at taxpayer expense.

Why does any of this matter now? Because in spite of the ample evidence before us, we in Washington still live in the free-market fantasy world that Ronald Reagan ushered in, that even President Obama has lamented he has not been able to alter, and which the work of economists such as Fama has propagated. Yes, we know that freer markets are better than "command" economies of the communist ilk. The end of the Cold War proved that as the United States essentially bankrupted the Soviet Union out of existence; even Beijing concedes this, as would the extinct dinosaurs of the Soviet era.

But it's long past time for the pendulum to swing back to the middle from the extreme conclusion that this means fully free markets always work well. They don't. The United States is, in truth, not a free-market economy but a "mixed" economy. As the great economist Paul Samuelson once wrote, the end of the Cold War meant only that "victory has been declared in favor of the market-pricing mechanism over the command mechanism of regulatory bureaucracy." The victor was plainly not pure laissez-faire capitalism but simply a more balanced economy—markets modified by government taxes and government-orchestrated transfers of wealth to limit inequality, and government monetary and fiscal policies to curb recessions and inflation.

The truth is not simple or rational, in other words, and in fact financial markets, most economists have long known, are the least rational of all,contra Fama. Even Milton Friedman didn't buy Fama's ideas, one of the late economist's students, Robert Auerbach, now a professor at the University of Texas at Austin, told me in a 2010 interview. Friedman asked his students: How could it be that all available information is instantly translated into price changes in a completely rational way, as Fama argued in his hugely influential theory, which opened the door to the kind of across-the-board deregulation that led Wall Street to almost destroy the global economy in the mid-2000s? Friedman pointed out that "traders couldn't make any money if that were true," Auerbach said.

Ironically, considering that it was tea-party antipathy to Obamacare – to "the government getting involved in health care"—that has put the United States on the precipice of default and economic disaster, some of the best economics work of recent decades has shown that the health care industry is one in which free markets don't work well. The Nobel-winning economist Joseph Stiglitz, among others, has demonstrated that this is because of the lack of good information shared between insurance companies and those they insure. The companies are habitually suspicious that their clients aren't forthright about their health and therefore always look for ways to deny coverage, like "preexisting conditions." Moreover, most health care is not a tradable "good"—everyone offers a different kind of service – and people rarely make "rational" decisions in health care. That's why many economists support universal coverage supplied or guaranteed by the government, or the idea of a public option. But you haven't heard much about that in the Obamacare debate, and of course as a sop to the free-marketers the public option was replaced by health care exchanges.

Obama himself has lamented the prevalence of a zeitgeist of free-market absolutism. Facing the debt-ceiling crisis in 2010, the president complained privately to a group of liberal economists how hard it was "to change the narrative after 30 years" of a small-government zealotry dating back to the Reagan presidency, according to one of the participants. In an interview last year, Maryland Gov. Martin O'Malley called it a "fairy tale gone wild." "Since Reagan, [the Republicans] have done a very good job of setting the frame and setting the story," O'Malley, a putative challenger for the 2016 Democratic presidential nomination, said. "The enemy is government. The enemy is taxes.… Taxes are things that must be eliminated. And the only good that comes from government is the elimination of taxes."

Economics, which flatters itself that it is a science (another myth perpetuated by the Nobel committee), should be helping us out of this confusion, but it is not. Should government be reined in? Of course. But the kinds of economic ideas that would allow a rational discussion of a mix of government and markets, spending cuts and revenue increases, no longer prevail in Washington, at least on the Republican side. And so we find ourselves in this perpetual non-debate, going from shutdown to shutdown and debt ceiling to debt ceiling, an endless state of brinksmanship fueled by misbegotten ideas. And the news from Stockholm isn't helping.

Why Yellen Will Be Tougher on Wall Street than Bernanke

Reprinted from National Journal

Most of the commentary about Janet Yellen, President Obama's historic choice to lead the Federal Reserve, is focused on her views about controlling inflation and unemployment, the Fed's twin mandate. (And here, promisingly, the "dovish" Yellen has said clearly that she is more concerned about unemployment, which is a huge problem, than she is about inflation, which presently is not.)

But another huge part of the Fed's job, especially since the 2008 financial crisis, is re-regulation of the banking system and Wall Street, where Yellen will finish the task that Ben Bernanke started. And here, too, while her track record is not quite as pronounced as it is on monetary policy, she is expected to be very aggressive in reining in risky practices. Yellen, who is almost certain to be confirmed by the Senate, may turn out to be even bolder in her prescriptions than Bernanke or the Obama administration have been, according to officials who have watched Yellen from the inside of the Fed during her three years as vice chairman.

For now, Wall Street is reacting mostly favorably to Yellen's long-anticipated appointment, thanks to her dovish views on inflation and the likelihood that she will not support "tapering" off Bernanke's quantitative easing program, so as to spike the economy's still-tepid growth and ease long-term unemployment.

But the banking community may not quite know what it is getting.

Yellen's views are considered very close to those of Daniel Tarullo, a progressive-leaning Fed governor and expert on global financial regulation whom Bernanke has deputized to oversee new banking and capital standards. In her public remarks, Yellen has echoed Tarullo's push for higher capital standards for "systemically important" or too-big-to-fail banks, and his concerns about curtailing the unstable short-term funding sources of too-big-to-fail banks. Tarullo has been more aggressive than the Obama administration in proposing "a set of complementary policy measures" that goes beyond the Dodd-Frank law. Among them: limiting the expansion of big banks by restricting the funding they get from sources other than traditional federally insured deposits.

Yellen, in an important speech in Shanghai, China in June, went beyond what Bernanke has said by explicitly endorsing some of Tarullo's efforts, saying, "I'm not convinced that the existing SIFI [systemically important financial institutions] regulatory work plan, which moves in the right direction, goes far enough." She also spoke of doing much more, as Tarullo has, to constrain the "shadow banking" sector that caused so much trouble in 2008, including broker-dealers and money market funds. Yellen said "a major source of unaddressed risk" is the hundreds of billions of dollars of short-term securities financing used by these firms, adding: "Regulatory reform mostly passed over these transactions."

Michael Greenberger, a former deputy director of the Commodity Futures Trading Commission and a leading voice for more transparent regulation of derivatives and other arcane Wall Street products, says that Yellen backed his stand for a tougher Dodd-Frank law than the Obama administration, Senate, and House were advocating back in 2010—a time when a fierce fight raged over the historic legislation to reorder the financial system. "I told her about weaknesses in the then existing Senate draft bills and the House bill. She was clearly sympathetic to my concerns, which, in turn, were a reflection of progressive legislative advocacy at that time," Greenberger said this week, recalling a talk he and Yellen had at the so-called Minsky conference in New York, where she gave the keynote address (noteworthy in itself, given that it is named for the late economist Hyman Minsky, who presciently described how financial markets are inherently unstable). Adds Greenberger: "The Obama Administration was not being particularly helpful about these substantive concerns. Compared to the powers that be at that time on the Hill and at the White house, she was a breath of fresh air."

Yellen is thus likely to continue a distinguished line of female regulators who have demonstrated a striking degree of vision, courage and integrity in taking on one of the most chauvinistic of industries, Wall Street. Among her predecessors and peers: new Massachusetts Sen. Elizabeth Warren, who has used her position on the Banking Committee to dress down Wall Street CEOs and the prosecutors who have failed to go after them; Sheila Bair, the former chairwoman of the Federal Deposit Insurance Corp. who angered then-Treasury Secretary Tim Geithner by pushing for harsher treatment of banks during Obama's first term; retired regulator Brooksley Born, who like Bair ran up against accusations that she wasn't a "team player" in the old boys' club when she sought to rein in over-the-counter derivatives trading back in the 1990s; and most recently Mary Jo White, the no-nonsense head of the SEC who has warned she's going to crack down much harder on Wall Street fraud.

Yellen, a former economist at the University of California at Berkeley, has a notable pedigree of skepticism about Wall Street's proclivities: A student of arch-market-interventionist James Tobin at Yale—who famously proposed a tax on financial transactions—she is also the wife and writing partner of George Akerlof, who shared the 2001 Nobel Prize in economics with Joseph Stiglitz for work that showed how markets can fail thanks to imperfect information. As such, she is likely to be even tougher than Bernanke, a former free-marketer and Republican nominee who changed his views somewhat after 2008 and has since turned the Fed into a major interventionist force in the economy.

The late Tobin and Akerlof fought career-long battles to make the case that financial markets work differently, and are more inherently prone to failure, than ordinary markets in goods and services. Their work has tended to back the prescription of John Maynard Keynes, as far back as the Bretton Woods conference in 1944, that "nothing is more certain than that the movement of capital funds must be regulated." In a 2010 interview, Akerlof said he "was always apoplectic" at the kind of rapid deregulation advocated by Harvard economist Larry Summers, who almost certainly would have been nominated in Yellen's place had he not backed out last month—in particular, the abrupt opening up of capital flows around the world, which has arguably led to financial bubbles in one economy after another.

While Yellen did not always act on regulation when needed—claiming that as head of the San Francisco Fed she had to wait on Washington's guidance—the record shows that she appeared to be somewhat ahead of Bernanke in appreciating the dangers of the securitization-led housing bubble. At the Fed's June 2007 she warned that the failing housing sector was the "600-pound gorilla in the room." That was only a month after Bernanke, in congressional testimony, said he saw only a "limited impact of subprime mortgages on "the broader housing market."

Yet Yellen also offered up a refreshing mea culpa after the financial collapse, telling the Financial Crisis Inquiry Commission in 2010 that she "did not see and did not appreciate what the risks were with securitization, the credit ratings agencies, the shadow banking system, the S.I.V.'s [structured investment vehicles]— I didn't see any of that coming until it happened." That remark was also a striking contrast to Summers, who has never acknowledged his far-greater responsibility for deregulatory policies that helped created the worst-ever financial crash in U.S. history.

Who Really Created the Tea Party? Guess...

Reprinted from National Journal

During his five years in office, President Obama has often blamed his problems on what George
W. Bush left him with: two wars, a historic recession, an out-of-control financial system and a
huge budget deficit. But W.’s most enduring legacy to his successor may have been the tea party
movement, and the political dysfunction that it has brought.

That may seem an odd conclusion. Today Obama is the central villain in tea-party rhetoric, and
Bush is hardly ever mentioned. Yet the rebellion against Big Government that the tea party has
come to embody really began more than a decade ago with a growing sense of betrayal among
conservatives over Bush’s runaway-spending habits. Conservatives were angered by his refusal
to veto any spending bills, especially in his first term, not to mention what happened during
the nearly six years of GOP control of the Senate and House from 2000 to ’06, when federal
spending grew to a record $2.7 trillion, more than doubling the increase during Bill Clinton’s
two terms. The final outrage that lit the brushfires of tea-party fervor was Bush’s sponsorship of
the $700 billion Troubled Asset Relief Program in the fall of 2008, just before he left office, in
order to bail out Wall Street.

It is arguably true that President Obama’s decision in 2009 to pile a giant stimulus and a new
national health-care program on top of TARP transformed those brushfires into a true national
conflagration—and a movement. But in reality Obama’s actions were more like a tipping point,
many conservatives say. “This social and political phenomenon of the tea partiers was burning
all through the Bush years,” Reid Buckley, brother of the late William F. Buckley and the self-
appointed keeper of his flame as a father of modern conservatism, said in a 2010 interview.
“It’s a long-term slow boil that has disaffected most people who call themselves conservatives.
There’s nothing I have against President Obama that in this I wouldn’t charge Bush with.”
It wasn’t just spending of course. Bush also built the intrusive post-9/11 national-security state
that Obama has embraced, and which a growing number libertarian tea partiers have come to
hate, including National Security Agency surveillance and a program of frequent but secret drone
strikes.

True, on many issues, Bush gained enthusiastic conservative support. Among them were his
hawkish response to the 9/11 terrorist attacks; his abandonment of the Kyoto Protocol and
resistance to domestic efforts to reduce the carbon emissions linked to climate change; his
conservative nominees to the Supreme Court; the two large tax cuts he passed in 2001 and 2003
(the latter was the first tax cut approved during wartime in American history); and above all,
his 2005 attempt to restructure Social Security, the pillar of the public social safety net, into a
program that relied less on government and more on markets to deliver economic security.

Yet throughout his presidency, Bush was far more comfortable with an assertive role for
Washington than many conservatives were. They recoiled from his proposals to expand the
federal role in education, create a prescription-drug benefit under Medicare and establish a
pathway to citizenship for millions of illegal immigrants.

On some of these issues—especially the post-9/11 response and the war in Iraq—a sense of
patriotism and party loyalty papered over growing conservative discontent with Bush’s fiscal
irresponsibility and national-security recklessness. But the fissures in the party were quietly
widening. Among the conservatives who cooled on Bush were some of today’s intellectual
champions of the tea party, such as Jim DeMint, the former senator from South Carolina who
now heads the Heritage Foundation and is a leading player in the Obamacare standoff; and Tom
Coburn, the zealously fiscally conservative senator from Oklahoma. For DeMint, Bush’s TARP
and stimulus in the fall of 2008 were “the last straw” in his disaffection from Bush, an aide to the
senator said. “There’s a lot of affection for Bush because of how passionately he fought the war
on terror. But as far as domestic policy goes, conservatives felt betrayed.” Coburn, in a speech
on the Senate floor in October 2005, inveighed against the remorseless earmarking of his fellow
Republicans and the spending of the Republican-controlled White House. “All change starts with
a distant rumble, a rumble at the grassroots level, and if you stop and listen today, you will hear
such a rumble,” he said.

Coburn spoke then of “committees full of outraged citizens” forming in the heartland. He
supported the Porkbusters movement led by Glenn Reynolds, a blogger (Instapundit) and law
professor from Tennessee, which resembled a dress rehearsal for the tea party movement. “It
started when Republicans were in charge,” Coburn told National Journal a few years ago. He
added that Bush’s “Medicare prescription drug plan—that was the worst thing imaginable, $13
trillion in unfunded liabilities.”

George W. Bush left behind many baleful legacies, among them a $3 trillion war in Iraq that
didn’t need to be fought, and the worst financial crisis since the Great Depression. But he also
helped to fracture his own party—and thus Washington.



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