An Outline of the Financial Meltdown in 2000 Words or Less

Take a shot of whiskey for courage and then let’s get started.

The story starts with Mortgage Backed Securities.  A mortgage backed security (MBS) is a bond backed by a pool of individual mortgages.  The government-chartered mortgage brokers Fannie Mae and Freddie Mac (FMFM) have always had the discretion to create them.  In the old days they worked like this.

I took out a mortgage from a bank.  The bank sold that mortgage to Fannie, recovering capital they can use for more investments.  Fannie packaged most of those mortgages into MBS’s which they sold to investors.  Fannie only accepted mortgages that met certain strict criteria.  That effectively regulated the entire market, creating requirements around credit ratings, loan to equity ratios, inspections, insurance, etc.  This stability and predictability translated into real estate prices that appreciated at a slow, stable rate throughout the post-war period.

This system limited the creativity of the mortgage market.  Since FMFM funded well over half the total mortgage market, their rules set the bar.  If you needed flexibility on some term (self-employed with income difficult to establish, private contractors, short credit history, etc) then a mortgage became much more expensive because it had to go through a different channel.

Mortgage backed securities have a quirk that used to limit their use beyond FMFM.  They suffer unpredictable returns.  This is less due to the risk of default (historically small) than because of the significant risk of early repayment, which dramatically reduces the total revenue from the note.

Along came an additional innovation in the ‘90’s – the Collateralized Debt Obligation (CDO).  A CDO is a pool of diverse assets, in this case perhaps mortgage backed securities of different qualities and ratings, carefully aggregated and arranged to hedge the risks from the various MBS’s.  These were usually divided into tiers called “tranches.”  Buyers of the riskiest tier of a CDO got the highest interest rates, with lower returns for the buyers of the safest tranches.

The bottom tranche typically would be wiped out by the first 3-5% of loses on the CDO. But the assumptions about the history of the real estate market suggested that this could almost never happen.  And the higher tranches were often considered as secure as anything in the investment market.

But even these instruments were tough to properly rate and price.  Plus, by the late nineties they were beginning to attract regulatory scrutiny.  Then in 2001, two important things happened.  There was a new President who embraced a radical withdrawal from financial regulation.  And a new mathematical model was developed that allowed rapid pricing of arcane derivatives like CDO’s.

The weakness with this new model was that it was reliant on historical trends.  When applied to the real estate market that weakness became a hidden trap.  The real estate market was exceptionally stable over a long period of time which under the model made CDO’s based on MBO’s look like a very safe investment.  However, once Wall Street got its teeth into the real estate market they dramatically changed the facts on the ground and the model did not adjust.

In the ‘aughts, a new generation of companies began to capitalize on the potential to market mortgages to Wall Street in the form of MBS’s packaged into CDO’s.  Opening up mortgage lending to broad Wall Street investment created new capital for unconventional lending – lending to borrowers whose mortgages could not have qualified to be sold to FMFM.

This could have been a good thing.  It made it easier, for example, for lenders to work with contract workers, solo professionals, and minorities.

There was still more innovation to come.  First, CDO’s could be held by federally regulated entities only if the CDO’s maintained the highest rating, AAA.  What’s more, if they achieved this rating, they could be held essentially off the books, like treasury bills.  As mortgage practices on the ground deteriorated, with companies searching high and wide to find buyers to meet Wall Street’s fresh demand for MBS’s, traders needed to get creative to try to achieve the necessary AAA ratings.

Bond crafters responded by making the tranches of CDO’s ever more complex and opaque.  The two major ratings agencies, Moody’s and S&P were earning enormous profits from this new business.  Though analysts at times complained that they were not getting enough insight into the nature of the actual mortgages being diced up into the various CDO tranches, superiors simply pointed to the model and told them to assign a rating.

Now buckle up, because this gets even more complex.  Here comes the weapon of mass destruction.

Firms looking to free up capital and hedge against risk decided that CDO’s, especially the lower tranches with higher returns and risk, could be made even more profitable if they could insure against the modest risk they thought they were taking.  The Credit Default Swap (CDS) was the perfect instrument.

A CDS is essentially an insurance policy.  Assume I own a $1m dollar bond paying 8% interest.  There is a small, but real risk that the bond issuer might fail.  So I contract with, say AIG, to insure that bond.  I pay AIG a modest premium based on their assessment of the bond’s risk, perhaps $20K a year.  In the event that the bond issuer fails to pay the bond, AIG is on the hook to cover the loss.  The arrangement lasts for the length of the bond’s term.  During that time AIG has to post collateral.  If the rated risk of the bond (the rating coming from the rating agencies, or the value assessed by the market) shifts, AIG might have to post more collateral or the bond holder might have to pay a higher premium.

Still with me?

A few important details here.  First, a CDS functions just like an insurance policy, but it is not an insurance policy, hence is not subject to the regulations that exist to keep insurance credible, solvent, and ethical.  Why wasn’t it brought under the regulatory umbrella?  Did I mention who was in charge during this period?  Why didn’t Democrats force the matter?  The unprecedented new lending to low income and minority borrowers provided a sort of regulatory hedge.  Think of it as a big fat political steak waved under the nose of the watchdog, making it easier to mislead or co-opt lawmakers.

Second, notice the importance of the ratings agency in this mix.  If the raters are fooled, co-opted, or negligent, bad things can happen.  Very bad things.

But up to this point, the situation is still not quite out of control.  Here’s where it goes nuts.  CDS’s themselves were traded like bonds.  And since they were for all practical purposes unregulated, there was nothing to keep people from selling me a Credit Default Swap on assets I don’t even own.  In effect, it was as if I could issue or buy insurance on your car.  This was important by about 2005 because the market was running out of decent new mortgages to bundle into MBS’s, assemble into incomprehensible CDO’s, and issue CDS’s on.  So they began to spin up CDS’s in a sort of circular form, rising into trillions of dollars (estimated at possibly $50tr+ for the entire market by 2008).

Apparently, even the bond issuers got into the CDS game.  It is possible to use a CDS to effectively bet against a particular bond.  Late in the game some CDO issuers started investing in CDS’s against the mortgage market.  In essence, building lousy CDO’s, then taking out insurance that would pay when the market failed.  This is documented in Michael Lewis’ book and is broader than the SEC’s similar fraud case against Goldman Sachs.

So to review, we have mortgages which have been assembled into bonds called MBS’s.  Those bonds are diced up into CDO’s, which are officially classed into different tranches to reflect the varying degrees of default risk, but in fact are being obscured and manipulated so that by 2005 many of them are junk, top to bottom.  Wall Street firms, banks, and insurers are issuing CDS’s to insure the holders of these CDO’s, but are also just issuing CDS’s on top of CDS’s on top of CDS’s in order to profit from the churn.  And each CDS ties up a small, variable chunk of collateral from the issuer.

Under the pressure of so much swirling money, even Freddie and Fannie got into the act by 2004.

And why would they engage in this risky behavior?  Money, of course, but more to the point real estate never declines in value, right?  Much of this activity would be solid if the assumptions about past real estate performance still made sense.  Plus, FMFM were beginning to lose a significant portion of the market and they wanted a piece.  But of course, practices on the ground had changed dramatically.  These were no longer traditional mortgage investments and it was not your grandfather’s mortgage market.

We’re almost done.  But I’ve left out an important element.  The mortgage lenders, although they sold off the mortgages to be assembled into MBO’s, generally faced a contractual provision to keep them “honest.”  They had to hold a portion of the riskiest tranches of the loans they generated for a term, usually two years.  This meant they only needed buyers to keep paying and not refinance for two years and they were in the clear.

They couldn’t care less what you as a borrower might do with your completely unaffordable mortgage after the interest rate reset three years down the line.  Someone else’s problem.

Except for one thing – by the end of 2005 many of the new loans were so extraordinarily lousy that buyers started defaulting after only a few months.  By the end of 2006 many of the largest mortgage lenders were collapsing under the weight of failed mortgages.  If ratings agencies had responded appropriately, there would have been painful collateral calls all up and down the stack of MBS’s, CDO’s, and CDS’s.  This would have triggered an S&L-style banking crisis.  In other words, a serious, but manageable crisis.  That didn’t happen and it continued to get worse.

We still don’t know exactly why the ratings agencies failed to respond, but it’s not hard to guess.  It isn’t easy to say no to another billion dollars in fees.  Besides, the obsolete model they were all pointing to still indicated that these investments were solid.  Collateral requirements and bond ratings did not adjust while the underlying assets turned foul.  The industry continued to ramp up higher and higher on a foundation of garbage.

By the time it was over, there were so many trillions of dollars of capital wound up in this idiotic system that its sudden collapse would have threatened not just banking or capitalism, but civilization itself.

As one trader related in a quote from Michael Lewis’ book:

“When banking stops, credit stops, trade stops, and when trade stops – well, the City of Chicago had only eight days supply of chlorine on hand for its water supply.”

It finally ended when failures of MBS-denominated securities became too visible to ignore and collateral requirements were raised by the ratings agencies.  Arguably the first major casualty was Bear Stearns in July 2007.  For a long time insiders were able to claim that this was a classic “bank-run” where a failure in confidence caused withdrawals, but of course that myth didn’t hold up for long.  By the time AIG went down in the fall of ’08 there was no more room to pretend.  It was over and the government stepped in to cushion the fall for all of us.

As a post-script, I still chuckle when I hear someone on TV say that mortgage holders should be continuing to pay their lousy loans on over-valued homes out of some misplaced ethical obligation.  The companies that built the crisis and understand the true nature of their obligations are laughing and doing the opposite.

Incidentally, there is an alternate-reality version of what caused the financial collapse promoted by the right flank of the GOP and the banking industry.  It blames the insidious 1977 Community Reinvestment Act, a law banning discriminatory banking practices like red-lining, for the crash.

How did an obscure law passed thirty years ago cause the crash?  Where do UFO’s come from?  Who’s hiding Obama’s birth certificate?  Why let facts interfere with ideology?  Here’s a description from an enthusiast.

Thanks for riding along through this one.  Naturally this misses a lot of detail.  What am I leaving out that’s important?

Some resources:

From the Web:

Credit Default Swaps

The Monster That Ate Wall Street

Dissecting the Bear Stearns Collapse

Mortgage Backed Securities

Books:

Busted, by Edmund Andrews

And Then the Roof Caved In, by David Faber

The Big Short, by Michael Lewis

Confederate Libertarians

Ron Paul is an unusual political figure.  He’s a genuinely nice guy who actually understands the viewpoints he expresses.  In policy terms he is the Republican version of Noam Chomsky or Ralph Nader; the committed zealot who makes the Party’s most radical case.  What’s that you say?  Neither Nader nor Chomsky could aspire to win any office in the Democratic Party?  That’s true.  The left’s most radical voices can’t get a seat at the table while the right’s extremists are in Congress and winning straw polls for President.  Draw your own conclusions.  But the comparison is still apt.

Paul has been turning out adoring crowds lately at right-wing pep rallies.  This past weekend he made an appearance at the Southern Republican Leadership Conference where he came within two votes of beating Romney in their Presidential straw poll.  In his speech he made an interesting comment.  He explained quite rightly that Obama is not a socialist, and described him instead as a “corporatist.”

The label seems to have left many attendees befuddled, but it shouldn’t.  It emphasizes a theme I’ve been harping on for months – that much of the GOP is confused by its own rhetoric.  For all the bluster about protecting Capitalism from Socialism, they don’t care a whit about either.  Paul knows what he and the movement stands for and he’s been saying it loudly for years, it just hasn’t been widely covered.

Paul says that corporations are basically being put in charge of the country to run it on our behalf.  He’s not the first person to express these ideas.  He is speaking from an old tradition; a worldview based on a perversion of Thomas Jefferson’s model of the independent rural farmer-citizen.  Though Paul himself may not be best example of it (he’s closer to a traditional Libertarian), the zealots pushing the Party ever farther into the extremes are effectively Confederate Libertarians.

The plantation class that dominated Southern life prior to the war embraced a peculiar worldview.  It was similar to Jefferson’s philosophy and modern libertarianism in that it was opposed to any government involvement in economic affairs.  But unlike modern libertarianism it was intensely authoritarian on religious and personal matters.

A slave-owning society has no room for genuine personal freedom.  This is reflected in their version of Christianity which was heavy on the “thou shalt nots” and light on the “blessed are the hungry” and continues to dominate Southern religious culture into our time.  They didn’t need a central bank, or vast railroad networks, or factories.  They just needed a government weak enough that it couldn’t rein them in and strong enough to be a robust policing force.

They felt that Northern Capitalism was a threat to their way of life.  They were right.  They were certain that Lincoln’s plan was to turn the slaves loose and unleash his godless Capitalism on them.

Capitalism encourages individual initiative, education, and infrastructure.  It distributes wealth based on achievement.  It taxes to maintain institutions needed for development.  A plantation culture values land, religion and authority.  It distributes wealth based on family relationships and race.  It taxes very little to provide almost nothing besides courts and police.  It has little need for public infrastructure of any kind, especially anything that would disrupt settled race and class relationships.

Ron Paul isn’t suggesting we return to slavery, but he is very loudly embracing the style of government that prevailed in the old South.  Doubt it?  Spend some time on his blog, or just ask him.  Paul takes a predictably dim view of both Abraham Lincoln and Alexander Hamilton, because they are the American prophets of capitalism and they challenged the plantation arrangement.

Paul is expressing the most powerfully distilled version of a tradition that quietly animates much of the GOP’s right flank, from the Tea Party movement to the fundamentalists.  Claiming to fight for Capitalism against Socialism is a lot more marketable than stating outright (or even admitting to yourself) that you miss Dixie.  It works if people don’t know the difference.

Regardless whether we are willing to admit it, that way of looking at the world developed by our long ago ancestors is still written in our bones.  It is a force that has weakened, but it is stirring again and it is dangerous.

We can choose to leave behind Confederate Libertarianism, grow up, and embrace a more complex and challenging world rich with economic opportunity and personal liberty.   Or we can let our fears overwhelm us and start organizing militias like this Tea Party group in Oklahoma.  Some people think the country needs more middle-aged, well-armed, white men passing drunken weekends at beautiful Camp McVeigh.  I disagree.  We fought a war over this stuff and we lost for a good reason – because Confederate Libertarianism is a formula for building a banana republic.  It doesn’t work.

I believe that our generation, primarily in the South and primarily inside the Republican Party, will determine what direction our country will take over the coming century.

I believe that the country and the Party will awaken to the lingering impact of a few negative elements of our proud Southern legacy.  If nothing else, demographics will force the matter.  I believe that the Republican Party will recognize that the enemy of a 19th century plantation owner is not our enemy, that capitalism and the dynamic, individualistic culture is fosters is a powerful good, and that sound, adult government is not a threat to liberty.

We’ll get there.  We have to.

I leave you with the wise words of Governor Sam Houston.

Join the Corporate Rights Movement!

Maybe you’ve always wanted to march for equality, but both the President and the GOP Chairman are already black, the Secretary of State is a woman, and gay people make you uncomfortable.  Here’s a chance to get in on the ground floor of the hottest new Civil Rights movement in the world.  Put on a power-tie and pack your briefcase.  The Corporate Rights Movement needs your human resources!

A recent Supreme Court decision has added to the Court’s long tradition of interpreting the Constitution in favor of new definitions of liberty.  In Citizens United v. FEC, the Court reached beyond the facts of the case to determine that corporations are entitled to the same constitutional rights as people, signaling an end to our long national nightmare of discrimination against bodiless Americans.

One brave corporation is stepping up to take advantage of our law’s new openness.  Murray Hill Corporation is challenging the State of Maryland for the right to run for Congress.  See their Facebook page and website for details and sign up to help.

Satire aside, Murray Hill’s challenge raises genuine Constitutional issues in light of the Citizens United decision.  Their campaign seems absurd on its face, but in reviewing the majority opinion their claims are entirely credible.

This kind of movement is not unprecedented.  Canadian authorities in British Columbia are currently reviewing a proposal (.pdf link) to allow corporations to vote.  No joke.  Corporations have had some limited voting rights there in the past.

The bent of the current Supreme Court has placed us in a position where corporations may potentially enjoy a more direct involvement in our political system.  We might need to start preparing for what this will mean and thinking about how it might operate.  Who will you back at the ballot box, Google or Microsoft, Boeing or Northrup-Grumann?

As Murray Hill states on their website, “It’s our democracy…We bought it, we paid for it, and we’re going to keep it.”

Reagan and Jesus

In a 2008 speech to a Republican crowd Indiana Governor Mitch Daniels made the blasphemous suggestion that it was time for the Party to move beyond the shadow of Ronald Reagan and start to develop some new approaches to current problems.  This was an invitation to mayhem.

Looking back on the incident, I think all Republicans can take some pride in the fact that no one was seriously injured.  Anyone who was tempted to go on a frothing rampage in the parking lot, turning over cars and setting tires on fire was calmly talked down.

“This isn’t the time, brother.  Save it for the town hall meetings.”

What did ensue was the next best thing, as the right-wing pundicrats lined up to give Daniels a good swift one to the crotch.

Ready to move past Reagan? So, are you tired of that ‘national anthem’ yet?  Think we need to get over that freedom and prosperity obsession?

It is tough to follow a tough act to follow.  It seems that we as a Party have devoted the past couple of decades to proving just how remarkable Reagan was by failing to live up to his legacy.  After a few attempts at topping one of our best Presidents we settled for trying to deliver the worst.

Reagan is becoming our Jesus, solution to every problem, example to be followed in every case, unquestionable emblem of all that is right.  When someone is deified, they tend to lose more than a little of their humanity.  The more we admire Reagan, quote him, and cite him in argument, the farther we seem to get from the guy who actually existed.

That’s the mixed problem/beauty of a bygone hero, whether Reagan, Jesus, or other.  You can claim his legacy all you want and he won’t show up at the convention to set you straight.

The Reagan Era embodies our best accomplishments as a Party since Lincoln.  As such, it might be worth reminding ourselves of a few of the realities that have been lost in the myth.  You tell me if we are still the Party that could elect this guy:

Ronald Reagan spent much of his life in Hollywood.  Divorced, with a difficult relationship with his children, he never clearly denied claims he relied on astrology in his decision-making.

Ronald Reagan did not attend church while in office.

Ronald Reagan was not a Southern Baptist or a Pentecostal, but a Presbyterian, a denomination with dark connections to all that Nazi “social justice” stuff.

Ronald Reagan, as Governor of California, signed into law the nation’s most liberal abortion rights bill.

Ronald Reagan, while President, signed into the law a sweeping immigration amnesty and reform bill.

Ronald Reagan treated his political enemies with the same remarkable human respect as he did his closest allies.  He did not demonize his opponents in Congress and his greatest legislative achievements were earned by cooperation and consensus.

Ronald Reagan possessed an unrivaled talent for expressing America’s core values abroad.  Though he never compromised his language, he was keenly conscious of the limits of military power and skillfully avoided (to the point of withdrawing from) entanglements that might have compromised our national security.

Go ahead.  Send someone who matches that profile to the next Republican National Convention. Better yet, send him to a state convention in Texas or Georgia.  Would they cheer him or would they praise our lord and savior Reagan while shouting that guy out of the building?

Hallelujah and Amen.

Reagan’s status as a legend says as much about us as it does about him. Governor Daniels was right.  We do need to move beyond Reagan.  Former Governor Jeb Bush has courageously picked up the theme.  We can’t govern on nostalgia.  We need to do the same kind of soul-searching Barry Goldwater did in the early 60’s, questioning our direction, looking carefully at where we are, and developing an approach to the future that adapts to new problems.

God Bless the Gipper.  Let’s move on.

Collectivism, Big Cities, and the Southern Mind

With a Black Democrat in the White House we are experiencing an unusual upsurge in concern about “government takeovers, “creeping socialism,” and other claims that can only fairly be described “in quotation marks.”  The Republican Party has a very important role to play as the country adjusts to the demands of 21st century global capitalism, but so far we have our guns trained on ghosts.  This hysteria seems to be blooming densely in the South, where it is part of a wider suspicion of any sort of government intrusion into personal life, regardless of the legitimacy, purpose, or merit.

Perhaps a metaphor would be useful.  In the fall of 2004 I moved my family from Houston to the Chicago-area.  Never mind for a moment what this says about my sanity or morals.  It happened.  Let’s all learn from it.  One of my earliest introductions to Yankee life came in the form of a charming orange flier delivered to our door by the town council.  It was printed front and back in small type with a laundry list of laws governing the disposal of our leaves.

This is a topic I had never given much thought.  Growing up in Beaumont we just burned them in the backyard.  The greasy odor of oak and pine smoke clinging to the ground under the cool, humid air is what fall always smelled like.

Living in Houston we piled them into the garden where they seemed to break down into mulch before we could finish raking them up.  If there were any formal ordinances about what we could do with our leaves, or with just about anything else from discarded car batteries to old jugs of Roundup, I never knew what they were.  Viva Houston, viva Libertad

The town’s little orange flier seemed uptight and faintly oppressive.  Until the leaves came down.

I had a great time with the kids making piles under the big maple.  Then we raked them into the beds around the bushes.  Done.  Take that, rule-obsessed Yankees.  When the frost hit them they dried up like parchment.  They seemed to rise and hover in the crisp air like paper embers.  With few fences in any of the yards, we found ourselves a couple of days later apologizing to our new neighbor three doors down, Mrs. Chicago-alski, while we corralled our leaves from her yard and hauled them back.

The town really won’t pick them up in plastic bags.  They were actually serious about that.  Apparently hefty bags don’t mulch well.  They want you to buy these big paper bags which are relatively costly, don’t seem to hold much, are hard to stand up, but are environmentally friendly.  And it turns out that, like the flier warned, if you just dump the leaves in your garbage cans for pickup they are in fact likely to freeze into a wad at the bottom and remain with you after the taillights of the garbage truck have disappeared around the corner.

In my first Yankee year this was just one of a thousand little brushes with what my Southern mind saw as a police state, but now seem like the necessary compromises required to maintain civility in urban life.  My little town consists of 43,000 people crammed into a space considerably smaller than Bush Airport.  In this dense warren its not safe for me to burn my leaves in the backyard and the cloying smoke would not be appreciated by my neighbors with their windows open to capture the cool night air.

But without the rules, I might have done it anyway.

I was raised on the ethic of a Southern man virtually sovereign under God on his own patch of soil.  That model makes perfect sense in Thomas Jefferson’s rural vision of the republic.  It makes no sense under Alexander Hamilton’s vision of an urban, capitalist nation.  To live in an urban environment we have to learn to live together with some rules.

These days Republicans are throwing around words like “collectivist” and “communist” to describe our concerns with Obama, but they sound silly even on our own tongues.  Obama is not a communist and my little orange flier was not oppression.  Southerners are not struggling against socialism.  They are struggling to come to terms with the demands of modern, global capitalism.

Like a lost memory we are feeling the same impulse that animated our Confederate ancestors who mistakenly railed against “wage slavery” and “Yankee Industrialists.”  They feared that capitalism would destroy their values and undermine their rural way of life.  They failed to recognize the tremendous potential of capitalism to not only make us more prosperous, but to open our world to more personal liberty.  They were wrong then with gruesome consequences.  We are wrong now and marching in their footsteps.

There are bright days ahead when we as Republicans put down our pitchforks and give up the search for the village monster.  There are bright days ahead when we learn to adapt Republican ideas to traditionally Democratic domains, when we learn to apply conservative solutions to problems of environmental protection, urban schools, healthcare, and developing new sources of energy.

And by the way, I found a way to get rid of my leaves without breaking the rules and without buying all those ridiculous bags, but that’s another story.  Junior was right, a country boy can survive, even in the big city.

Abortion – A Possible Solution?

Yesterday in Houston thousands of people marched to protest the opening of Planned Parenthood’s new health clinic.  These kinds of protests have been staged for more than a generation across the country.  Rallies have been held to influence political candidates.  Billions of dollars have been raised and spent on the abortion-lobbying industry.  Fierce and often ridiculous campaigns have been raised to influence the Supreme Court nomination process.  After all this, the state of abortion law in the US remains more or less where it was in the mid-‘70’s.

The abortion issue has become a monumental political distraction.  It has been cynically manipulated by politicians on both sides of the aisle, a perfect issue to stir up volunteers and cash without any accountability for results.  That can change.

It is a common misperception, fed by the politicians who depend on it, that the Supreme Court’s decision in Roe v. Wade bars any state or federal abortion limits.  An abortion restriction that only applied after the fetus was “viable,” and included reasonable provisions for rape, incest, and protection of the life of the mother, would almost certainly be upheld.  These kinds of restrictions are common in Europe and abortion is a far-less consuming political issue there.

Imagine if the Texas legislature passed a law this session that banned abortion after the twentieth week of pregnancy, except in cases of rape, incest, fetal deformity, or to protect the life of the mother.  Given the Supreme Court’s decision in a recent Nebraska case on partial-birth abortion there is very little possibility that the Court would strike down a law crafted this carefully.  It could stand.  The era of “abortion on demand” would be over.

What would be the effect?  Out in the “reality-based community” where real people are living their lives, the effect would be modest.  A small percentage of abortions performed today would be illegal under this rule.  However, in the political world, the impact would be monumental.

For starters, the law, even so broadly crafted, might not pass, not even in Texas.  The effort to pass the law would in itself expose the fragility of the pro-life movement.  For all the noise, it has been surprising to see how narrow the true, pro-life political base has become.  South Dakota, one of the country’s most socially conservative states, twice in the last decade has failed to pass an initiative banning abortion.  An effort to pass real legislation that would place genuine, reasonable curbs on abortion rights would expose the fact that there is almost no support for extreme pro-life positions outside church or the Republican National Committee.

The fight over such a bill would also flush some of the fundamentalist-pandering out of the GOP.  If faced with an opportunity to sign their names to enforceable abortion curbs that would actually affect their wives and daughters, politicians would be forced to show their true stripes and pay at election time.  We might find out which Republican politicians are genuine fundamentalists and which ones have been decked out in the cross and flag for cynical reasons.

If states began to address abortion directly in their legislatures, passing limits that met with both popular and Constitutional approval, the bottom would drop out of the multi-million dollar abortion political machine on both sides. Imagine how boring Supreme Court nominating hearings would be – as boring as they should be.

There is value in such a law by its own merits.  No matter how you approach it, abortion is a complex, morally ambiguous issue.  It is a logical challenge for a reasonable person to accept either that abortion of a just-implanted fetus is murder, or that abortion of a fetus at thirty weeks is not.  A law of this type could achieve consensus on the extremes, while preserving the individual burden to resolve the most vexing cases.

There are solutions to our most troubling political problems if we have the courage and imagination to embrace them.  The benefits to our politics and to the future of the Republican Party could be enormous.

Abortion and the Real Impact of “Judicial Activism”

It’s dangerous in politics to have no friends and abortion has no friends.  No one says, “I want to grow up and have an abortion.”  It’s not on anyone’s bucket list.  There are no cheerleaders for abortion.  It isn’t fun, it isn’t glamorous.

Fundamentalists may see abortion, as they seem to regard all other issues, as black and white. But those of us who are unaccustomed to hearing the audible voice of God must wrestle with the ambiguities of this issue as best we can.  Even the Republican Party platform in the year Reagan was first elected, “recognize[ed] the differing views on this question among Americans in general – and in our own party.”

Abortion has no friends because the popular movement to liberalize abortion laws was cut off abruptly by the Supreme Court’s decision in Roe v. Wade.  Having new rights commissioned for us by the Supreme Court might seem at first like a great thing, but it can have consequences that warp our politics.

Why are there so few voices inside the Republican Party standing up for a reasonable position on abortion?  I believe there are two reasons.  First, there is a perception that it doesn’t matter much.  As a political issue abortion is mostly a settled question.  In spite of decades of efforts from the anti-abortion movement, Roe v. Wade has been reaffirmed and strengthened over the years.  It isn’t going anywhere.

Second, doing something as simple as publicly recognizing the moral ambiguities of abortion will make you the target of some very determined and unreasonable people.  They are fostering a frightening atmosphere of violence while suffocating any dissent.

This creates an unusual political dynamic in which politicians, at least on the Republican side, have every incentive to issue the most extreme denunciations of abortion, and almost nothing to gain from holding back.  You might feel a firm personal conviction about a woman’s right to make her own reproductive decisions, but you know that you’ll never at any point in your career be forced to cast a vote of any consequence on the subject.  You may have the moxie to buck the trend, but you are likely to lose.  Over time that dynamic has silenced reasonable voices and empowered the most extreme and the most cynical.

Regardless of how you feel about abortion rights, this highlights one of the most potent criticisms of decisions like Roe v. Wade.  When politicians feel like they can count on the courts to nullify all of their nuttiest actions there is less incentive for them to be rational.  The worst consequence of the bold, activist stance of the federal courts in the sixties and seventies is the way it has sponsored juvenile behavior from elected officials in our time.

We have grown to see the Supreme Court as the adults in the room who will protect us from the consequences of our most infantile acts.  It has protected us from some extremes and advanced the cause of liberty in the short run.  But over the long term maybe this is not such a good thing.  It has perhaps left us all with less of an investment in the democratic process and left our politics immature and brittle.

When the Supreme Court uses its power to create sweeping new civil liberties it is easy to feel a cheer coming on.  Those of us who cherish human freedom and see great power in laws that protect the dignity and rights of all of us love to see the law standing on the side of liberty.  But it would be wise for us to take a moment to consider the consequences.  The next time we see some new protected right emerge fully developed from the pen of a Supreme Court Justice we should ask, “Why weren’t we able to accomplish this ourselves?”  The liberties we fail to earn may be liberties we are unable to keep.

Is it possible to pass legislation that would step us back from “abortion on demand,” reduce the frequency of abortions, and also square with the requirements of Roe v. Wade?  Recent Supreme Court decisions in cases involving late-term abortion have made clear that there are options. Legislation protecting viable fetuses which includes reasonable consideration of the mother’s interests would be likely to withstand constitutional scrutiny.

Why is there so little interest among Republicans in promoting such legislation? Perhaps after decades as a political football this issue is just too valuable to destroy. In the present climate, there is little incentive for either side to reach a compromise.  And the money keeps pouring in…

The abortion issue is an opportunity for reasonable voices in the Party to prove they are serious and weaken one of the pillars of the extremist fringe in both parties. Sponsoring responsible, considered abortion limits, calculated to pass constitutional muster, could set to rest a matter that has siphoned precious energy. It would be a potent victory for serious conservatives that could have far-reaching impact beyond the issue itself.

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