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A Malefactor of Great Wealth

We remember 2008 right? The great recession? The worst financial crisis since the Great Depression? Recall the photos of grim faced politicians and financial industry executives huddled in tense meetings trying to keep the U.S. and world economy from going over a fiscal cliff?

Henry Paulson

Henry Paulson

Treasury Secretary Hank Paulson dry heaving as he headed into a meeting that might or might not save the economy? Paulson actually got down on one knee in one meeting begging then-House Speaker Nancy Pelosi to explain the seriousness of the crisis to mostly clueless Washington politicians.


The American attention span is…short. We tend to forget and often forgive and move on. That might be the American way or it might be just be our collective attention deficit disorder. We forget and then forget to connect the dots. Once in a while it’s worth remembering how close we came to economic Armageddon as well as those who took us there.

The Lehman Bankruptcy…

LehmanBrothersBankrupt-LGOn September 15, 2008 Lehman Brothers, a massive international investment bank, declared bankruptcy. The United States government had stepped in and prevented the demise of several other big and equally reckless firms – Bear Stearns and AIG among them – but Lehman was left to die an ignominious death. It was one of the largest corporate collapses in modern history. Billions were lost. The already fragile U.S. economy was badly shaken. Questions were then asked if not answered about how it had all happened. Legislation was proposed and some passed. Time moved on.

Two years ago and five years after the Lehman bankruptcy, The Guardian newspaper took stock of the Lehman fallout and concluded, in part: that the magnitude and scope of the crisis was still impacting the global economy. The paper also noted some of the additional fallout, including “the fact that only a handful of politicians and central bankers saw it coming; the rise and fall of global co-operation; the unprecedented policy response with its as yet unknown side-effects; the transformation of a private debt crisis into a sovereign debt crisis; the squeeze on living standards; and the shift in the global economy away from the developed west towards emerging markets.”

In other words the events of 2008, which may now seem like ancient history, remains strikingly relevant to the American and world economy.

The Gorilla of Wall Street…

A little over a month ago the man at the helm of Lehman before and during the great crash, Richard Fuld, made an extremely rare public appearance, his first speech to a Wall Street crowd in six years. The event was certainly noticed in the financial press, but most of the rest of us could be forgiven for missing the story. We have a presidential campaign to endure, after all, and it’s baseball season.

Richard Fuld, former Lehman CEO

Richard Fuld, former Lehman CEO

Dick Fuld, the one-time Lehman CEO, is described in one profile as a diminutive 5’8” bundle of brashness and energy, with a “famously voracious appetite.” Senior executives at Lehman “sometimes ordered him a mid-morning plate of ribs. The joke was that he never gained weight; his intensity burned off the calories.” Fuld – his nickname “The Gorilla” is a reference to his large, slanting, primate-like forehead – used his rare public appearance in New York recently to attempt, not surprisingly perhaps, to re-write his own and Lehman’s history.

Fuld also displayed no contrition or self-awareness. Lehman really wasn’t failing back in 2008, Fuld said, its demise was the result of the mistakes of others, including – should we see irony here – federal banking regulations and cut throat competitors who sold Lehman short. The Lehman culture, the former CEO contends, was nothing short of perfect. Mistakes were made, Fuld admitted, but not by him.

Not everyone – or perhaps no one – who heard the speech bought Fuld’s message. One former Lehman employee helpfully pointed out that lots of people lost lots of money even as the one-time CEO pocketed nearly a half billion dollars “in salary, bonuses and options between 2000 and 2007.”

Here’s Someone to Blame…

Time magazine named Fuld as one of the 25 people “to blame for the financial crisis” and summed up Lehman’s role in the near destruction of the U.S. economy by saying that the man who built that perfect Lehman “culture”:

“Steered Lehman deep into the business of subprime mortgages, bankrolling lenders across the country that were making convoluted loans to questionable borrowers. Lehman even made its own subprime loans. The firm took all those loans, whipped them into bonds and passed on to investors billions of dollars of what is now toxic debt. For all this wealth destruction, Fuld raked in nearly $500 million in compensation during his tenure as CEO…”

The flavor of the Lehman “culture” that Fuld raved about recently was captured in a lengthy piece in Vanity Fair back in 2010.

“The wives of Executive Committee members,” the magazine noted, “were expected to support the numerous philanthropic causes Lehman endorsed—for example, to make annual donations to the American Red Cross, Harlem Children’s Zone, the American Friends of London Business School, and various hospitals. Kathy Fuld collected modern art, and she particularly liked Cy Twombly, Brice Marden, and Jasper Johns. In 2002 she joined the board of the Museum of Modern Art and by 2007 was a vice-chairman. Not only were the wives of Lehman’s senior management expected to attend MoMA evenings and other charity events (along with their husbands), they “were told exactly how much they had to donate,” says one. (There is now a gallery at MoMA dedicated to Kathy and Richard S. Fuld Jr.)”

How About a Little House in Idaho…

Fuld's Bigwood estate in Sun Valley, Idaho

Fuld’s Bigwood estate in Sun Valley, Idaho

Meanwhile, Lehman’s subprime mortgage play and the firm’s strategy to pass along to investors all that toxic debt were no doubt hatched during the company’s annual summer retreat at Fuld’s opulent, eleven bedroom estate in Sun Valley, Idaho. The compound complete with a pool and gatehouse occupies more than 70 acres and thousands of feet of river frontage.

Back before his fall from the ranks of Wall Street’s elite, Fuld decreed that the annual Lehman’s Sun Valley retreat was a mandatory event for wives as well as the firm’s high rolling executives. One wife told Vanity Fair the event “was this weird combination of business and then competition between wives and their husbands. Hiking was mandatory for all.”

Another Lehman spouse recalled that the trip was “an absolute nightmare to pack for.” Evenings events “required pretty dresses, jewelry, and Manolo Blahnik shoes, while hiking gear was needed for the days, as well as ‘day clothes’ for the mornings spent antiquing—trips for which there was a hierarchy as to who got to ride in which car…The couples got to Sun Valley on the two planes owned by Lehman, together known as ‘Lehman Air.’ Francine “Fran” Kittredge, a managing director, arranged for each person or couple to be met at the airport by a driver with an S.U.V. The waiting line of dark-glassed S.U.V.’s was almost comical to behold, according to one attendee—like a scene from a movie depicting the motorcade waiting for a landing president.”

You might think that one of the 25 people responsible for the most serious financial crisis since Herbert Hoover was in the White House might, just might, suffer some of the adverse consequences of his actions. But in the United States few things succeed like excess, or put another way excess on the part of the crowd that brought us the Great Recession creates cash flow, at least for them. Dick Fuld and his wife reportedly have had to sell off parts of their art collection, which fetched $13.5 million. The couple’s 16-room Park Avenue apartment had to go, as well. It netted nearly $26 million.

A few days after Fuld blamed the “government, reckless borrowers, aggressive investors and poor regulation,” for Lehman’s demise, while of course assuming no blame for himself, his outrageously well-paid minions or the “Lehman culture,” he put that little Sun Valley fixer-upper on the auction block.

The company handling the auction told the Wall Street Journal that Fuld’s compound is expected to fetch $30 to $50 million. He’s reportedly selling because “he isn’t using” the place as often as he used to. We should consider that good news, I think, And don’t feel too sorry for the guy. He’s obviously not wasting any time worrying about what he did and his net worth is still in the neighborhood of $200 million.

A Malefactor of Great Wealth…

In a 2013 piece in Bloomberg Business Joshua Green wrote, “Although many of his peers also made disastrous decisions, no one on Wall Street has paid a steeper price in reputation and personal fortune. This owes partly to Fuld’s hubris, brutish manner, and aggressiveness…” Fuld figures in several dozen lawsuits relating to the Lehman downfall that are still pending and there are reports that the one-time Wall Street “gorilla” is still under investigation by the Securities and Exchange Commission, which if there is any justice means his next “house” might be easier to get into than out of.

Fuld has also become the subject of academic research mostly focused on how powerful CEO’s go off the rails. One study was entitled “When Does Narcissistic Leadership Become Problematic? Dick Fuld at Lehman Brothers.” The author of that study, British academic Mark Stein, told Bloomberg Business that initially Fuld’s military demeanor and demanding ways were an asset to Lehman, but that his own ego and personality soon become more important than running the business carefully.

“When the credit crisis struck…Fuld’s narcissism became ruinous. ‘It was clear that Lehman was overleveraged,’ Stein says. ‘Many people inside and outside the firm understood that it had to be sold to survive.’ But Fuld’s identity was wrapped up in Lehman, and he wouldn’t countenance the affront to his dignity that a sale would have represented. ‘As long as I am alive, this firm will never be sold,’ he said in late 2007, the Wall Street Journal reported. ‘And if it is sold after I die, I will reach back from the grave and prevent it.’

More than a hundred years ago Theodore Roosevelt had a term for the crowd that thanks to their egos, greed and shamelessness came close to taking the American economy over the cliff. We still live with their avarice and recklessness, even as some attempt to re-write their role in the story. T.R. called them “malefactors of great wealth.”

Those malefactors are still around. Don’t forget it.

When to Quit

One of the most difficult things to do in politics – perhaps the most difficult – is to quit. When do you cut-and-walk-away from a Marriageposition that is no longer correct, or defensible? How do you back down when time moves on and you are stuck on the wrong side of history? The wrong side of morality? The wrong side of the Constitution?

There are political calculations involved in quitting. There always are. What will constituents think who passionately continue to believe in a position that can no longer be sustained? When do you call off the lawyers, save the money and the time, and try to reconcile the age old problem of holding two conflicting ideas in your mind at the same time? How to admit that by continuing to advocate what you believe to be right, you will really be wrong?

The Ninth Circuit Court of Appeals has now presented Idaho with this most difficult moment. The most fierce advocates for denying Ninth Circuitsame sex marriage have now been told – repeatedly – that they are behaving in a manner not permitted under our Constitution. Those fierce advocates would be, in many cases, also the greatest defenders of the Constitution, at least the one they think they know. But now a bunch of faceless, nameless judges have said the Constitution’s guarantees of equal treatment under the law really do apply to all our people, even those who want to marry someone of the same sex. And what do you do?

Governor George Wallace stood in the school house door in Alabama to defy the Constitution. Governor Orval Faubus forced an American president to send paratroopers to Little Rock when he couldn’t bring himself to quit. Governor Ross Barnett permitted a riot to break out and people to die on a college campus in Mississippi rather than cut-and-walk away. Upholding the Constitution is difficult and dangerous business, just like quitting a position is difficult and, at least, politically dangerous.

Perhaps the most wonderful thing about America – and also the most difficult – is the idea that all the provisions of the sacred Constitution apply even to those we most fervently disagree with. I don’t like your speech, or your flag burning, or your race or religion, I disagree with your life style, but it doesn’t mean – it can’t mean – that my Constitution isn’t also your Constitution.

One can appreciate how far Idaho officials charged with defending the unconstitutional have gone by reading the Ninth Circuit’s decision (or, for that matter, Idaho federal Magistrate Candy Dale’s earlier decision). The arguments used by Governor Butch Otter’s lawyers to defend Idaho’s official position are, there is no nice way to say it, utter nonsense and if the matters at hand were not so serious the arguments would be just this side of laughable.

One of those nameless, faceless judge is Judge Stephen Reinhardt. He certainly looks like a judge, doesn’t he? Writing for the Ninth Circuit, Reinhardt says at one point in his decision: “Same-sex marriage, Governor Otter asserts, is reinhardtpart of a shift towards a consent-based, personal relationship model of marriage, which is more adult-centric and less child-centric.”

The Judge, it would appear, was attempting to get to the essence of why Idaho has so strongly resisted same-sex marriage, but as he traveled the state’s road and attempted to reconcile Idaho’s claims with what the Constitution says, he found there was no there there. In a footnote, the Judge said this, really:

“[Otter, or more correctly his lawyer] also states, in conclusory fashion, that allowing same-sex marriage will lead opposite-sex couples to abuse alcohol and drugs, engage in extramarital affairs, take on demanding work schedules, and participate in time-consuming hobbies. We seriously doubt that allowing committed same-sex couples to settle down in legally recognized marriages will drive opposite-sex couples to sex, drugs, and rock-and-roll.”

The Constitution doesn’t say anything about being a good parent, or a good spouse. It says a lot about equality under the law and now the Ninth Circuit with its decision, and the Supreme Court with silence, has told Idaho you need to stop treating people differently, because the Constitution of the United States says so.

Moving on from a long-held position is not only difficult, it can also be constructive and help foster understanding and greater acceptance. It is a teaching moment if someone wants to teach. A leadership moment if someone wants to lead. The U.S. Constitution is the textbook.

When Governor Faubus in Arkansas couldn’t reconcile himself – and his constituents – to the fact that the fundamental law of his nation allowed black girls to go to school with white girls in Little Rock in 1957 he wrote the first sentence of how history has remembered him to this day. The Encyclopedia of Arkansas says this about Orval Faubus, the longest serving Governor in the state’s history: “His record was in many ways progressive, but he is most widely remembered for his attempt to block the desegregation of Little Rock’s Central High School in 1957. His stand against what he called “forced integration” resulted in President Dwight D. Eisenhower’s sending federal troops to Little Rock (Pulaski County) to enforce the 1954 desegregation ruling of the Supreme Court.

Faubus“The Governor is “most widely remembered” for defying the Constitution and clinging to his old, illegal and morally indefensible position. Not the epitaph any politician imagines for himself.

Will the arguments about same-sex marriage continue in Idaho? Of course, just as they continued regarding race and equality in Little Rock in the 1950’s and beyond. Can political leaders, particularly those who have so adamantly defended what they have now been told is indefensible, help begin a more constructive conversation about fairness and equality? Of course they can. But, will they? Courage and leadership are required. Can they do it?

In the wake of the Ninth Circuit decision, Idaho has filed another appeal, but they will have to quit eventually. The Constitutional logic is too obvious. How they do it, the walking away and quitting, will be almost as telling as what they fought so strongly to prevent – equality and fairness.


Politics is Motion

5112796991_002_ltBefore there was a Karl Rove or a James Carville there was John Sears. A Republican political consultant closely identified with Richard Nixon and Ronald Reagan, Sears plays a central role in a fascinating new book – The Invisible Bridge: The Fall of Nixon and the Rise of Reagan – by the great chronicler of the modern conservative movement Rick Perlstein.

Sears “brilliantly stewarded Ronald Reagan’s run from near impossibility to a dead heat” with President Gerald Ford in the 1976 Republican primaries, Perlstein writes. Reagan ultimately fell just short of grabbing the GOP nomination from the unelected Ford. It was the closest presidential contest since 1948. Had just a couple of things broken Reagan’s way he might well have won and, who knows, made it to the Oval Office four years earlier than he finally did.

Sears was a major force in that campaign. Reporters loved him for his candor and insight. Rivals, Republicans included, frequently snipped at him because he often was the smartest guy in the room and wasn’t shy about showing it.

Reagan once joked to journalist Theodore White that, “There was a feeling that I was just kind of a spokesman for John Sears.” Sears got canned during Reagan’s 1980 campaign when he clashed with the candidate’s California brain trust, but since he was a real pro he simply said it was Reagan’s right to get rid of him. Sears later worked as an analyst for NBC News.

Since Labor Day is now history and the kids are back in school, we can turn our gaze to elections that are now just two months away. Heading into the home stretch for Campaign 2014 there are some smart words from John Sears that are worth pondering for all candidates who want to win in November.

Sears’ trademark saying, Perlstein writes, was “politics is motion.” In other words, “When your campaign sets the terms of the political debate, you are winning. When your opponent has to catch up with one of your moves, he is losing.” Politics is motion. Let’s apply this notion to the race for governor in Idaho.

Electing an Idaho Governor

If you measure the common metrics of politics – the strength of the economy, support for education, party unity among them – the incumbent governor of Idaho, C.L. “Butch” Otter, ought to be in a world of hurt in 2014. Otter, a fixture of Idaho politics since the 1970’s, has been in the middle of a nasty intraparty feud that produced a virtually unknown challenger who gave him a run for his money in the May primary. mediaThe challenger ended up beating the two-term incumbent in some of Idaho’s largest counties, including Otter’s home base of Canyon County. Those party wounds are likely scabbing over as the election nears, but some deeply disenchanted Tea Party-type Republicans still say they would like to “punish” the governor for, among other things, embracing a state-based health care exchange. Many who have know him for years find it amazing that Butch can be attacked as being too liberal, but such is the state of Republican politics these days.

At the same time a brace of less-than-good news about education funding, a failed education reform initiative, Idaho personal income declines, and a botched prison privatization effort should further put Otter on the defensive. When it comes to funding schools and measuring personal income, it used to be said that “Idaho is the Mississippi of the West.” That can now be amended to “Idaho is Mississippi.” None of this should help the incumbent, but it doesn’t seem to be hurting much either.

The National Federation of Independent Business (NFIB) recently endorsed Otter for keeping Idaho taxes and spending low, which is also the flip side of Idaho’s Mississippi-like commitment to educational funding. To date the political discussion of school funding and the economy in Idaho has largely avoided the fact that while state spending on education has been shrinking in recent years due to a stingy state legislature and the governor, property taxpayers are paying more-and-more to keep the lights on at the school house. The need to pass supplemental levies at the local level, which is now virtually routine in many districts often means that the poorest school districts in Idaho just get poorer. The recent failure of a levy in Lapwai means kids in that district will get PE classes online. Nearly 40 Idaho school districts now operate only four days a week.

Another recent study, as reported by the Associated Press, indicates that “Idaho residents have among the lowest personal incomes in the nation but spend a higher percentage of their money on food, housing and other essentials compared with most others, according to data…by the U.S. Bureau of Economic Analysis.” Another report on the changing demographics of education in Idaho offered this sobering prediction over the next five years: “The state is expected to see net growth in lower income households and net declines in households with incomes above $50,000.” Ouch.

The governor once made funding highway needs the center point of his legislative agenda, but even with an overwhelming GOP majority in the legislature couldn’t bend his own party to advance his priority. Highway funding has virtually disappeared as a political issue. And the governor has to deal with at least one other issue – the political fatigue factor that often attaches to a politician seeking a third consecutive term. A third consecutive gubernatorial term has happened twice before in Idaho, but long ago – first in the early 1930’s and then again in the early 1960’s.

Somewhere in that mix of issues and impressions, amid the studies on incomes and educational support, and complicated by the GOP internal turmoil, there might be a coherent message for a challenger, something like Idaho is off on the wrong track and Otter has had his chance. But if politics is motion, as John Sears would say, the motion at this post-Labor Day moment still seems very much with the incumbent.

His liabilities notwithstanding, including a third-party challenger coming from the far, far right who could take five of more percentage points in the general election presumably at Otter’s expense, the Idaho governor’s race seems to be unfolding just the way Butch Otter and his supporters might have hoped it would. The old tried-and-true Republican playbook, the corners tattered and worn, is opening up as it always has, and as it so very predictably would, against Democratic candidate A.J. Balukoff.

The state’s big business lobby, the Idaho Association of Commerce and Industry (IACI), which actually supported development of a state-based health insurance exchange, as did Gov. Otter, is on television attacking Balukoff for being a Obamacare loving “liberal,” a word as bad in red states today as Communist was in the 1950’s. Balukoff says he voted for Mitt Romney last time, but no matter. IACI also takes the Democrat to task for supporting tax increases. Those taxes, of course, are the regular levies that Boise School District patrons regularly pass in an effort to keep their schools among the best the country. Balukoff supported those efforts as a long-time member of the school board, but no matter.

The Farm Bureau, which of course doesn’t endorse candidates, has weighed in saying the Democrat doesn’t understand rural Idaho. Soon Balukoff will be giving away Idaho’s water and going door-to-door picking up guns. It may be an old and tattered political playbook that is being dusted off one more time, but it has worked time and again in Idaho and given a tepid challenge there is little reason to change a winning formula.

Politics is Motion

Meanwhile, the Otter campaign is on the air with a entirely positive commercial touting an improving Idaho economy and a governor that stands up to the feds. It almost reminds me of a Cecil Andrus spot in 1990, including the line that “Idaho is a great place to live, work and raise a family.” It’s morning in Idaho. Otter can take the high road when he has others more than willing to take the low.

Balukoff’s task in this race – any Democrat’s task – is to say something coherent and meaningful about the shortcomings of Otter’s eight years as governor – and there is plenty of raw material – and then present a picture of what a better future might involve. He doesn’t need to be nasty, but he does need to be pointed and specific. When your campaign sets the terms of the political debate, you’re winning. Politics is motion and time is short for a challenger to define the Idaho race in a way that just might make it competitive. Balukoff’s campaign so far seems very much like the campaigns that have come up short for Democrats for the last 20 years – too timid and ironically too conservative.

History tells us that generals always want to fight the last war. Politicians want to run the last campaign. You can often do that as an incumbent, but you don’t beat an incumbent, particularly an incumbent Republican in a state like Idaho, by doing what hasn’t worked before. To make it a race the challenger needs to make it a real choice for voters. You start framing the choice by establishing what the race is about – and its not a health care exchange and Barack Obama – and by taking a few risks.

Right now the Idaho race is about a Republican incumbent without much to brag about against a Democrat from Boise who is being defined as “a liberal.” It is not difficult to predict how that script plays out in November.


Fighting to Innovate

2013-Tesla-Model-S-front-1Tesla, the electric car manufacturer, is attempting to revolutionize the American auto industry by building safe, attractive, energy efficient electric cars that are designed to meet a growing customer demand. But…there are some challenges.

Tesla, in challenging the long-established American way of selling new cars, is (big surprise) hitting decades-old speed bumps as it tries to invent a new approach for you – the consumer – to purchase a car. The Tesla story is a great case study in innovation, but also a story about how often American capitalism is arranged to thwart innovation and protect the status quo of well-entrenched interests who like the things just the way they are.

Henry Ford’s great contribution to American industry was, if not to invent at least to perfect, the assembly line. That process allowed one of his Model T automobiles (and after 1928 the Model A) to seamlessly travel a route along the factory floor as auto workers added piece after piece until finally a finish car eased off the line. It was an innovation that helped revolutionize the auto industry and made Detroit, for a couple of generations at least, the center of world manufacturing.

In ol’ Henry’s day Ford workers were paid $5 a day and it was said you could have any color Model T you wanted as it was black. The cars were affordable, relatively easy to repair and drive and Americans bought 15 million of them. When Ford decided to introduce the improved and more stylish Model A – you could buy the car in exotic colors including Arabian Sand – the big factories the company operated had to completely shut down for months while re-tooling took place. Ford’s dominance with the “T” had been challenged by General Motors and other manufactures who were innovating with more powerful engines and attractive features like electric starters and windshield wipers. Ford was into basic until he couldn’t sell basic. And while the Model A was a great car, Ford Motor Company never again truly dominated the industry Henry Ford had invented, in part, because the company took an innovation holiday that never really stopped until the advent of the trendsetting Mustang in 1964.

Ford and his rivals back in the early days of American motoring also faced tremendous challenges in getting their products to market. The system of automobile dealerships so common today began to develop in response to the need to distribute the product. Before long almost any town of size had a Ford dealer, a Chevy dealer and eventually perhaps a Packard, a DeSoto or a Chrysler dealer. The dealers became major players in the local and state economy. Some became household names because their faces were splashed on billboards or later television. And, in keeping with the American way, they became influential players in politics. In time the car dealers largely wrote the laws in most states that attractively (for them) limited competition by requiring, among other things, that you buy your new car directly from “Happy Town Ford,” an independent franchisee, rather than directly from a factory.

The trouble for Tesla is simply that the old dealership model, a feature of the American industry since the 1920’s, isn’t how Tesla sees its cars being sold in the 21st Century. I think of Tesla as the Apple of car dealers. Lots of customer service, a showroom more Mad Men than Joe’s Garage and a product that demands high touch and higher concept. Looking at a Tesla is like browsing an Apple store. Buying a new Toyota unfortunately feels more like a trip to K-Mart.

Three states – New Jersey, Texas and Arizona – have now made it clear to Tesla that the company can’t sell cars directly from its sleek, Apple-inspired stores.  Rather the company, under existing state laws, must conform to the old, old dealership model. Not surprisingly long-established automobile dealers, no doubt threatened by aggressive new competition and no doubt quietly encouraged by established manufacturers, have pushed state officials to make Tesla conform to a sales model and state laws that Henry Ford would have recognized.

“The dealer regulations are similar to those put in place to save the family farm and protect individual farmers,” Jack R. Nerad, the executive market analyst at Kelley Blue Book told the New York Times. “But the landscape is vastly different now. Big dealerships don’t need the type of protection the single-brand store needed back in the day.”

The latest state to tell Tesla to take a hike is New Jersey, ironically where Gov. Chris Christie has lately experienced his share of auto-inflicted political wounds. After apparently first encouraging Tesla to do business in New Jersey, Christie now says the automaker needs to deal with the state legislature in order implement its business plan in the Garden State. He sounds like he’s suddenly never heard of lobbying the legislature to encourage a new business venture.

“Tesla was operating outside the law,” Christie recently said during a town hall meeting. “I have no problem with Tesla selling directly to customers, except it’s against the law in New Jersey.” That, indeed, is the problem. Maybe, just maybe, the law needs to change, but if you’ve been around state legislatures much you know the local car dealers have a lot of clout.

Ironically, Tesla is facing serious push back from two states – Arizona and Texas – that Tesla’s CEO Elon Musk has said he wants to consider as sites for a $6 billion factory that might employ 6,500 workers who would manufacture the lithium ion batteries to power the cars he wants to sell. I hardly need point out that the places where Tesla has been most aggressively backed off are all states with free market loving Republican governors. So far tough guy governors like Christie in New Jersey and Rick Perry in Texas haven’t done much of anything to change a restraint of trade business model enshrined in state law. The next time you hear a politician rail against too much regulation you might think Tesla.

All of this makes corporate recruitment a good deal more difficult, too. Tucson, Arizona would like to host the Tesla factory – who wouldn’t – but why would Tesla open a state-of-the-art facility and spend a few billion in a state that won’t allow the company to sell its product the way it believes in most effective?

I long ago came to believe that in politics, and in most of life, the simplest explanation is most often correct. American automobile manufacturers, and that group would include firms like Toyota, Nissan and others that have effectively become U.S. manufacturers, are looking over their shoulders at Tesla and seeing a smart, sophisticated and aggressive competitor. Detroit, a name we don’t often associate with new thinking, has been late to the innovation party at least since the Edsel hit the street. The status quo they know is comfortable and predictable. You can almost hear them saying – why change? We wrote the law and we like it just fine thank you.

Tesla is a 21st Century car company that is also trying to revolutionize the energy world. First, however, the company needs to change public policy and alter a status quo that works to the advantage of a powerful, entrenched group of business owners who love to sell and service cars just like they did when my dad bought his Model A Ford.

Inventing a new kind of car might prove to be a lot easier than changing a few decades of law that protects the aging and arguably outmoded business model of all those guys down at the Auto Mall.

Understanding the Mind of Other Men

alexander-hamilton-og-BEAlexander Hamilton was the nation’s first Treasury Secretary and not, as Groupon recently promoted, one of those old, dead white guys we celebrate on President’s Day. Hamilton, who died in a duel with Aaron Burr, would probably rather be remembered as the chief author of a number of the Federalists Papers, the brilliant essays on the powers of government that continue to serve as footnotes to the Constitution and as PR “white papers” that helped sell the founding document to the nation.

In Federalist 78, Hamilton, writing as Publius, discussed several issues related to the judicial branch of the government that had been created under Constitution, including how judges would be appointed and why it was essential to their impartiality and independence that they be guaranteed “life tenure.”

Hamilton was an elegant writer, if somewhat prone to the run-on sentence. Here’s a key (long) sentence from his famous discourse on judges and the judiciary. “This independence of the judges is equally requisite to guard the Constitution and the rights of individuals from the effects of those ill humors, which the arts of designing men, or the influence of particular conjunctures, sometimes disseminate among the people themselves, and which, though they speedily give place to better information, and more deliberate reflection, have a tendency, in the meantime, to occasion dangerous innovations in the government, and serious oppressions of the minor party in the community.”

It would be understandable if you didn’t get all that in one reading, but Hamilton’s essential point was – I’ll put it in my words – that the judiciary ultimately stands as a guard against popular whims and government actions that run counter to the Constitution and individual liberties. The great Federalist admits – maybe hopes – that over time the people will be smart enough to figure out these “ill humors” and correct them, but in the short term, minus “more deliberate reflection” public men (and women) can and will make mistakes or, heaven forbid, stupid decisions.

The job of a judge – particularly a federal judge – is unique in our system and, as Alexander Hamilton and others argued, it must be unique in order for the delicate balance of competing interests among the three branches of government to work. Judges must have the opportunity to engage in “deliberate reflection” and the freedom to know that as long as they maintain certain ethical standard their jobs are not in jeopardy.

Not One of Us…

Idaho’s governor is a genial fellow. In the old days we might have referred to him, as in the old English phrase, as “a hail fellow well met.” I’ve heard Butch Otter quote Shakespeare and he’s been known to lace his speeches with references to the Founders, especially that champion of limited government Thomas Jefferson. Otter once courageously voted against his party and a Republican president when he argued that The Patriot Act, passed in the wake of the September 11 attacks, might well become a threat to civil liberties.

Ours is, as they say, a free country and sharply worded criticism from the lips of public officials is about as common as Groupon promotions, but the nature of Gov. Otter’s recent criticism of Idaho’s widely respected federal District Judge Lynn Winmill – Otter reported said the judge “isn’t one of us” – is just plain hard to figure. Otter went on to suggest that Winmill  “doesn’t share all of the enthusiasm for the marketplace and freedom that we do in Idaho.”

The governor may be able to quote Jefferson, but he may find it useful to re-read some Hamilton.

Read more here: http://blogs.idahostatesman.com/otters-blast-at-judge-winmill-hes-not-one-of-us/#storylink=cpy

Goodness knows federal judges are not – nor should they be – immune from serious criticism. Franklin Roosevelt once famously said after the U.S. Supreme Court had wiped out much New Deal legislation that the court was stuck “in the horse and buggy” era of judicial analysis. Dwight Eisenhower privately lamented the Brown v. Board of Education decision that struck down the decades of law that held that blacks and whites could gain the same quality of education in segregated schools that were “separate but equal.” Barack Obama dissed the current Supreme Court’s decision in the Citizens United case that opened the floodgates for corporate and labor money to wash into our politics. Criticism of judges is cheap and it is a free country.

What is interesting about the Idaho governor’s criticism is not that he made it, but that he has yet to offer any specifics that might illuminate both his criticism and how he thinks about the role of judges. After all, Otter regularly appoints state court judges. Some enterprising reporter needs to follow-up.

Meanwhile, as the Idaho Statesman’s Dan Popkey has noted, Winmill’s capabilities as a person deserving of life tenure was rather exhaustively vetted when he was nominated by President Bill Clinton 19 years ago. Then-Sen. Larry Craig took pains to explain to the Senate Judiciary Committee how diligent he and then-Sen. Dirk Kempthorne had been in assessing Winmill for a job on the federal bench. Craig said they had consulted widely with bipartisan members of the bar and retired judges and determined that Winmill “was extremely well qualified.” Needless to say, the two Republican senators didn’t rely for their analysis on the opinions of the Bannock County Democratic Central Committee, a group that also would have been high on Winmill.

When Kempthorne had his chance before the committee nearly two decades ago he quoted the Old Testament to the effect that “justice, and only justice” must be the pursuit of a judge and that Winmill “meets this test.”

Judge Winmill, who I have known since his early days in Bannock County politics, hardly needs any defense from me, but if you wonder, as I do, about the governor’s recent comments about the federal judge ask any lawyer you know for his or her take. I predict you’ll get an earful.

The Mind of a Judge

Years ago U.S. Supreme Court Justice Benjamin Cardozo, considered by most historians of the court as one of the greatest justices in the nation’s history, was asked who among his Supreme Court colleagues he considered to be the greatest living American jurist. Cardozo said, “the greatest living American jurist isn’t on the Supreme Court.” The greatest judge, Cardozo maintained, and he may well have been correct, was the hugely respected U.S. Appeals Court Judge Learned Hand of New York. Hand, who died in 1961, served on the federal bench for 52 years and was still deciding cases when he died. He is still regarded as the best judge to never make it to the Supreme Court.

Until 1944 Judge Hand was largely unknown outside of legal circles. Then he made a speech at a huge ceremony where thousands of immigrants became U.S. citizens. The speech both captured public imagination and served to articulate Hand’s own mind as a judge. He titled the speech “The Spirit of Liberty.”

“What then is the spirit of liberty? I cannot define it; I can only tell you my own faith,” Hand said. “The spirit of liberty is the spirit which is not too sure that it is right; the spirit of liberty is the spirit which seeks to understand the mind of other men and women; the spirit of liberty is the spirit which weighs their interests alongside its own without bias; the spirit of liberty remembers that not even a sparrow falls to earth unheeded; the spirit of liberty is the spirit of Him who, near two thousand years ago, taught mankind that lesson it has never learned but never quite forgotten; that there may be a kingdom where the least shall be heard and considered side by side with the greatest.”

I was reminded of Judge Hand’s short and remarkable speech a few years back when I was in the audience when Judge Winmill, a man remarkably well-read in history as well as the law, called upon a detailed discussion of the infamous Dreyfus Affair – the scandalous anti-Semitic trial of a French military officer in the 1890’s – to illustrate a talk about the American system of justice. I have also heard the judge talk about the lessons of the now widely acknowledge miscarriage of justice that lead to the unconstitutional internment of Japanese-Americans during World War II and to the qualities required of a patriot.

I admit to bias about such things, but I like my life tenured judges to know about, think about and reflect on the kinds of ideas that judges like Learned Hand and Lynn Winmill did and do.

In Federalist 78 Alexander Hamilton made the case for life tenure for federal judges in order to insulate those judges from the pressures and partisanship of daily politics under our system. It’s not a perfect system, of course, politics and partisanship still leak in from time-to-time, but it is a system that has and still serves the nation pretty well. Hamilton recognized something else when he was writing in 1788 – that being a judge requires special skills not always widely available in society.

“Hence it is,” Hamilton said, “that there can be but few men in the society who will have sufficient skill in the laws to qualify them for the stations of judges. And making the proper deductions for the ordinary depravity of human nature, the number must be still smaller of those who unite the requisite integrity with the requisite knowledge.”

Integrity and knowledge then, when everything is said and done, is what we really must demand from a judge. Decisions and rulings, along with ill-defined criticism from politicians will come and go. Integrity and knowledge were the qualifications for the Founders and that should still be good enough for us.

Read more here: http://blogs.idahostatesman.com/otters-blast-at-judge-winmill-hes-not-one-of-us/#storylink=cpy

Old Debate, Same Outcome


The Idaho Legislature has devoted considerable time and money over the last few months to an analysis of how the state might take over the public lands in Idaho that have been owned since statehood (and before) by all of us – meaning all American citizens – and managed by the federal government.

Never mind that the effort would likely be declared unconstitutional or that the U.S. Congress would never permit such a wholesale transfer, the movement has once again gained some modest traction in the American West. This latest effort will doubtless fade, as earlier ones have time and again, when the reality of managing the land collides with the fear of having to sell much of it in order for a state to afford ownership.

As the Washington Post has reported Utah has been the most aggressive in pushing a state takeover. Utah’s governor signed legislation in 2012 demanding the federal government transfer title even though the state’s legislative counsel opined that the move had a very “high probability of being declared unconstitutional.”

Just because a federal land transfer is a fool’s errand doesn’t mean this is a new issue. Far from it. Some of us will remember the Nevada roots of the a similar effort in the 1980’s, dubbed “the Sagebrush Rebellion” when local officials in the Silver State worked themselves into high dudgeon over federal management of public lands. The movement rose like a rocket and eventually sank like a stone, but not before it had a full political run at the county and state levels all across the West.

When Ronald Reagan was elected in 1980 he promised to reflect the “values and goals” of the Sagebrush Rebellion, but the former California governor must have know, even if his inept Interior Secretary James Watt didn’t, there was no public appetite for selling off the public’s land or for allowing it to be exploited by a rape, ruin and run crowd of exploiters. Quite to the contrary, the public wanted in the 1980’s – and still wants today – a conservation and economic development balance that demonstrates respect for policies that both conserve and carefully utilize the public lands.

An internal 1980 Interior Department analysis of the Sagebrush Rebellion – “A Old Issue With A New Name” – pointed out that agitation over control, ownership and management of Western public land is as old as the nation itself. In other words, the political winds have blown back and forth on these issues, but always the policy course has tacked in the direction of maintaining the public’s land for the public’s benefit.

I want to quote from that 33 year old Interior analysis, because it still seems so relevant to the debate today in Idaho, Utah and elsewhere:

• In 1832 the Public Land Committee of the U.S. Senate claimed that state sovereignty was threatened by federal land ownership. The rest of Congress, however, maintained its discretionary authority to manage such land without limitation and rejected the complaint.

• In 1930 the Hoover Administration proposed to cede much of the public domain to the states. The recommendation was opposed by both an eastern Congressional majority and by Western states, who having already acquired the most productive land, wanted no responsibility for, as was said, the “waste lands” remaining.

• In the 1940’s Nevada Senator Pat McCarran conducted a series of “investigations” into the Grazing Service (one of Bureau of Land Management’s predecessors) and the Forest Service, both of whom were trying to bring livestock grazing under greater control on public land. In 1946 Senator Edward Robertson of Wyoming sponsored a bill to convey all unreserved and unappropriated lands to their respective states. The BLM was formed the same year.

• In 1956 Senator Russell Long of Louisiana proposed similar legislation.

None of the legislation went anywhere, but the political heat generated was substantial in every case.

The 1980 Interior document goes on to pin the genesis of the 80’s Sagebrush Rebellion on what it termed “the pinch of the Federal Land Policy and Management Act of 1976, the final comprehensive articulation of national policy on how the remaining unreserved lands would be managed. FLPMA, years in the making, reflected the public realization of the enormous national values held in trust in the public lands and called for those resources and values to be managed for all Americans under the principles of multiple use and sustained yield and on the basis of sound land planning.

“Stated simply, it became clear that consideration of all possible users made the sphere of influence of certain users, heretofore unchallenged, suddenly shrink.”

It has been argued by various advocates of state control over the West’s vast public lands that the states could manage the land more efficiently. The 1980 Interior analysis asked and answered a more important question.

“Fundamentally, the question isn’t whether the States can afford to manage the public lands. They could. They could increase taxes and sell some of the land, and in the case of the energy States bet against future revenues. That’s not the right question. The question is whether the Nation’s interests are best served by such management, and the answer is no.”

Some useful information has been generated by Idaho’s current effort, including a new Congressional Research Service report that estimates, on the conservative side, that the U.S. Forest Service, Bureau of Land Management and Fish and Wildlife Service spend upwards of $320 million annually managing your public lands in the state. The Idaho Department of Lands entire budget, including federal funds that the department administers, is something less than $20 million. The math, to say the least, doesn’t compute.

The Tea Party-type groups that have to a significant degree been driving the current debate must believe the transfer of lands issue is a political winner, but they may want to check that assumption. Before he was governor of Idaho, Butch Otter was the congressman who briefly advocated selling some public land in the West to offset Hurricane Katrina expenses. The future governor wisely backed off the idea when the political downside, including a potential loss of prized Idaho hunting ground, became a real liability.

From time-to-time and for far into the future we will hear of “a new Sagebrush Rebellion” sparked by some alleged misdeed by a federal agency or federal policy, yet the overall course of federal-state relations in the West is set and has been for a long, long time. Serving the broad public interest will no doubt remain the essential objective of public lands policy in the American West.

The land legislators talk about as “federal” is really “public” land, and one of the beauties of America unlike most of Europe, for example, is that the land really is owned by all of us. Even better for we westerners, American taxpayers in states with little or no public land – think Nebraska, Kansas or Iowa – subsidize the management of our public land, but we need to remember that those folks also share ownership.

We’ll continue to fight over public land management, that is the western way, but rather than continuing to argue over a land transfer that will never happen we might be better served to more constructively debate the details of land management policy, including fire, grazing, timber and mining policy, so that our kids and grand kids can be certain to benefit from the great legacy – the trust – that is embodied in the singularly American idea that all that precious land belongs to all of us.


The Rhyme of Political History

ralph-crane-gov-robert-e-smylieThe last time an Idaho governor received a serious primary challenge he lost.

It was 1966 and three-term incumbent Republican Robert E. Smylie, pictured here dressed like he might have been trying out for The Sons of the Pioneers, seemed to be at the zenith of his political power – chairman of the National Governors Association, the senior governor in the nation and a serious player in national politics.

Time magazine took note of Smylie’s re-election announcement in April of 1966 by reporting, “In Idaho, Republican Governor Robert E. Smylie, 51, dean of the nation’s Governors and a 1968 vice-presidential hopeful, filed for a fourth four-year term, which if completed would make his the longest gubernatorial tenure in U.S. history (current record: 15 years, set by Maryland’s Albert C. Ritchie from 1920 through 1934). Smylie, who led the 1965 fight to dump Goldwaterite Dean Burch as G.O.P. national chairman, will campaign on his ‘New Day’ programs of increased state outlays for health, welfare and education financed by a 3% sales tax.”

Time confidently predicted Smylie was “assured” of winning the GOP nomination. He wasn’t. The future vice-presidential hopeful lost his party’s nomination to a little-known state senator from Bonner County named Don Samuelson. That election had dramatic consequences for Idaho’s political history.

“When the primary returns were tabulated,” University of Idaho political scientists Syd Duncombe and Boyd Martin wrote in a post-election analysis, “Samuelson carried all but seven of Idaho’s forty-four counties to defeat Smylie 52,891 to 33,753. One columnist [the Lewiston Morning Tribune’s Robert Myers] attributed Smylie’s defeat to his long term of office, his support of the sales tax, and opposition from Goldwater Republicans stemming from his role in the replacement of Dean Burch.”

Following Arizona Republican Sen. Barry Goldwater’s disastrous 1964 presidential lost to Lyndon Johnson – NBC’s Chet Huntley called Goldwater supporters “classic Republicans, segregationists, Johnsonphobes, desperate conservatives, and radical nuts…the coalition of the discontent” – the moderate wing of the GOP, shoved aside by Goldwater’s hard right followers, set out to reclaim the national party and Bob Smylie helped lead the moderate charge.

One major target of Smylie and the GOP moderates was Tucson, Arizona lawyer Dean Burch, a friend of Goldwater’s who the candidate had installed as chairman of the national Republican party. Burch helped turn the party hard to the right, as Rick Perlstein documents in his fascinating book on Goldwater called Before the Storm. When Ku Klux Klan leaders in Georgia and Alabama, for example, endorsed Goldwater in 1964 Burch refused to disavow their support and said only “we’re not in the in business of discouraging voters.”

Smylie’s Moderate National Role

In January of 1965, after Goldwater’s landslide loss to Johnson, Smylie made national news when he said, as the Associated Press reported, “the time is past when Dean Burch can do anything to save his job as national chairman of the Republican party.” Conservative commentators took to identifying Smylie as a leader of the “Rockefeller wing” of the national party with one writing that the Idaho governor was utilizing “meat axe” tactics to push Burch out as national chairman. Eventually Burch, who went on to serve as chairman of the Federal Communications Commission and a top aide to Richard Nixon and Gerald Ford, resigned the GOP chairmanship and was replaced by Ohio pol Ray Bliss, a choice acceptable to party moderates like Smylie.

In the mid-1960’s the national Republican party was badly divided, much as it is today, between an insurgent wing loyal to Goldwater’s brand of unflinching conservatism and a moderate wing where political operators, like Ray Bliss, preached the politics of expansion. Bliss, for example, once said his only concern as party chairman was winning elections.

The Goldwater partisans were, in many ways, an earlier version of today’s Tea Party adherents and in Idaho they effectively took over the state party. Bob Smylie found himself swept along in these roiling waters with a growing national profile as a moderate who at the same time had to appeal to an increasingly conservative Idaho GOP. It was a difficult, maybe impossible task, since Smylie stimulated bitter hostility from much of the party base, including a young woman named Gwen Barnett.

Idaho’s Republican national committeewoman, Barnett was the youngest member of the national committee and she made it her cause to defeat Smylie. As long-time Idaho political observer Marty Peterson wrote a while back, “Barnett had become a close ally of the Goldwater forces. Her friend Dean Burch, a former member of the Goldwater Senate staff, had been elected Republican national chairman. She was also close to such rising conservative stars as John Tower, who had become the first Republican elected to the senate from Texas since Reconstruction.” Barnett recruited Samuelson to run against Smylie, helped round up the money and saw to it that insurgent Idaho Republicans united behind the challenger. The resulting and stunning defeat of the moderate Smylie made 1966 one of the most significant years in Idaho political history.

Looking back on this near ancient political history it is now easy to see that Smylie, a governor who deserves to be well remembered for creating a state park system and establishing a balanced tax system, committed a cardinal political sin – he lost touch with his base. Undoubtedly this supremely self-confident man was overconfident.

Generally speaking there is little payoff in Idaho for being well regarded on the pages of Time or being chummy with the very liberal then-governor of New York Nelson Rockefeller. You can Google Robert E. Smylie today and find a photo of him at the Boise airport in 1959 welcoming his buddy Rockefeller to town and another picture of Smylie in 1961 at a national governors’ gathering wearing shorts, his shirt unbuttoned to the naval and at the helm of what appears to be a very large yacht. Not exactly typical Idaho political images today or in the 1960’s.

The Rhyme of Political History

Fast forward to 2013 and the news last weekend that a relatively unknown state senator, Russ Fulcher of Meridian, will challenge two-term incumbent Butch Otter for the Republican nomination for governor in 2014.

As Mark Twain is famously reported to have said, “history doesn’t repeat itself, but it does rhyme.”

It would be easy to overstate the parallels between 1966 and 2014, but you would also have to have political blinders in place not to recognize some of the striking similarities about the two races separated by nearly 50 years. The first would be Gov. Otter’s “long term of office” – four years in the state legislature, 14 years as Lt. Governor, six years in Congress and going on eight years as governor. It is often true in politics that as the years accumulate so do the enemies.

Another parallel: Otter’s opponent comes to the race from a perch in the state senate where by all accounts he has assembled a very conservative voting record not unlike Samuelson all those years ago. And like the man who beat Bob Smylie, Fulcher is making a straight forward play for support from the insurgent/populist wing of his party.

With Idaho Democrats still mostly an after thought in the state’s politics, the Idaho GOP has in effect become two or maybe more parties divided into various factions. There seems little doubt the anti-establishment, populist oriented Tea Party wing (and its many variations) has been on the rise since at least 2008 when insurgents pushed out a state party chairman who had the support of Otter and many of the party’s traditional movers and shakers. Many of those same insurgents, over the objections of Otter and other leaders of the party, then successfully battled to close the state’s GOP primary, in essence forcing party registration on Idaho, a move which seems certain to ensure that the most motivated and perhaps the most disenchanted Republican voters dominate next May’s primary election.

Ironically, the battle for the heart and soul of the Idaho GOP, tends to pit more traditional business-oriented, Chamber of Commerce Republicans against the same brand of populists who fueled Barry Goldwater’s rise in the early 1960’s. Generally speaking many of these voters are the most skeptical of government, dismissive of “elites” of any type and disdainful of long tenure in office. All of which makes you wonder if Gov. Otter’s forthcoming campaign event in Coeur d’Alene, featuring the great moderate hope of the national GOP New Jersey Gov. Chris Christie, will serve to reinforce the image that the insurgents are fighting the establishment. Christie recently won a landslide re-election in New Jersey by appealing to Democrats and independents with the kind of campaign Ray Bliss would have loved, but that many in the Tea Party find off putting.

One final parallel. Don Samuelson had a compelling issue in 1966 against the incumbent. Smylie’s championing of the sales tax – first put in place in the 1930’s then repealed by voters before being resurrected in 1966 – was at the heart of the entire campaign that year. Ironically Idahoans endorsed the tax at the ballot box in November of 1966 even as Samuelson, who had voted against the measure in the legislature, was winning a four-way general election race with barely 41% of the vote. The pro-tax vote in 1966 was 61%. Samuelson simply sliced the electorate just finally enough to grab the votes of the anti-tax crowd, and that block and a few more votes were enough to give him a win.

[It’s worth noting that both Idaho parties originally nominated anti-sales tax candidates for governor in 1966 even as voters were warming to adopting the tax at the ballot box.]

Fulcher’s issue is, of course, Otter’s advocacy of development of a state-managed health care exchange, which he equates to Otter supporting “Obamacare.” Never mind that Otter sued the federal government and lost over the extremely controversial health insurance reform law before concluding that the state would be better off developing its own exchange rather than relying on the federal government.

Obamacare, not unlike rank and file GOP resentment of Smylie’s moderate leadership role in national politics and his support for establishing a sales tax in the 1960’s, could become a powerful cause for many GOP primary voters, and in politics a powerful cause that juices up the base can, as long-time Idaho analyst Randy Staplius recently observed, be even more important than the profile of the candidate.

The politics of Idaho just became a lot more interesting and, while it should be said emphatically that Butch Otter has many, many significant advantages as he goes for a third term as governor – a solid conservative record, a winning personality, a polished retail approach to politics, lots of money, and the advantages of incumbency – once in a while history does rhyme.

The Wonderful Unpredictability of Politics

Political scientists Duncombe and Martin presciently noted in their 1966 election analysis that, while Idaho Republicans had won big at the ballot box that year – electing Len Jordan to a full term in the U.S. Senate, winning both of the state’s congressional seats, picking up seats in the legislature and, of course, retaining the governorship – the party came out of the Smylie-Samuelson experience badly divided. Such “rifts would need to be healed” they pointed out if the party were to consolidate its gains in 1968 and beyond. What actually happened show that the riffs weren’t so well healed.

In 1968 Democrat Frank Church won re-election to the U.S. Senate and just two years later, in 1970, Democrat Cecil D. Andrus, who had cut his political teeth on primary and general election campaigns during the dramatically unpredictable year of 1966, won the governorship over Samuelson who proved to be a better giant killer than a governor.

Andrus has often said when folks joke about Samuelson’s ineptitude as governor, “Don’t say anything bad about Don Samuelson. If there hadn’t been a Don Samuelson there never would have been a Cecil Andrus.”

That 1970 election began 24 straight years of Democratic control of the Idaho governorship, a political phenomenon that seemed unimaginable four decades ago, but that happened in no small part because of the turmoil fostered by the primary defeat of an Idaho governor who seemed unbeatable until he wasn’t.


Higher Ed, Lower Expectations

Idaho is about to lose another high value educational asset. The loss is coming, in part I suspect, because the state has engaged in prolonged and systematic disinvestment in education at all levels and higher education has been particularly hard hit.

University of Idaho President Duane Nellis apparently will depart shortly for Texas Tech University in Lubbock; a 30,000 student, major research university that competes athletically in the Big 12. Nellis was named late last week as the “sole” finalist for the desirable Texas Tech job.

Nellis’ departure comes four years after University of Idaho supporters prevailed upon him to take the job at Idaho’s land grant university by sweetening the salary offer with private dollars above and beyond what the State Board of Education was prepared to pay. The Nellis move marks the second departure of a high value U of I president to a place where education is clearly a higher priority than it is in Idaho. Tim White, Nellis’ predecessor, left the Moscow school in 2008 to head the University of California-Riverside and since has since been promoted to head the entire 23-campus California State University system. Talk about a brain drain.

(Full disclosure: my firm has had a long-standing client relationship with the University of Idaho and know and admire both Nellis and White. I have also done volunteer work for years with the Andrus Center at Boise State University.)

It’s clear that Nellis was recruited for the Texas Tech job and White’s rapid rise in the huge Cal State system speaks for itself. Both men are quality leaders with national reputations who, in the whole scheme of things, had barely a cup of coffee as they passed through educational penny-wise and pound-foolish Idaho. One can hardly blame them for leaving for states where admittedly educational budgets have been whacked, but where higher education is still seen as the surest path to economic growth.

At California-Riverside White helped open the first new medical school in the state in four decades, while during his tenure in Idaho Nellis launched a major fundraising campaign and continued to grow the U of I’s research budget. Nellis moves to a Texas Tech system that boasts a law school, a health sciences center, a big graduate school and a national/international foot print in agriculture and trade.

(Political junkies will note that the Texas Tech system’s Chancellor is former U.S. Representative Kent Hance, a conservative Democrat-turned-Republican who holds the distinction of having beaten one George W. Bush in a congressional race in the 1970’s. Hance is a major player in Texas politics who, among other things, as a House Democrat, helped then-President Ronald Reagan pass the Reagan tax cuts in 1981.)

California’s bizarre budget and spending constraints required that Gov. Jerry Brown take a measure to the ballot last November to raise taxes, part of which he sold as a break with the state’s recent history of disinvestment in higher education.

As the New York Times recently noted, “Governor Brown holds a position on the board of trustees for both Cal State and [the University of California]. Since November, he has attended every meeting of both boards, asking about everything from dormitories to private donations and federal student loans. He is twisting arms on issues he has long held dear, like slashing executive pay and increasing teaching requirements for professors — ideas that have long been met with considerable resistance from academia. But Mr. Brown, himself a graduate of University of California, Berkeley, has never been a man to shrink from a debate.”

Like Idaho, spending on colleges and universities is down in California and in Texas, and enrollment is up. What seems different, however, is that some states in the post-recession period are finally starting, however tentatively, to invest again. And of equal importance these states actually demonstrate a genuine commitment to higher education by exploring real reform. For example, Oregon Gov. John Kitzhaber is pushing forward with a major reworking of the state’s university governance system that will likely lead to more independence and spending flexibility. Other states are linking state support to educational outcomes, hoping to change incentives from merely enrolling students to keeping them in school.

Idaho, on the other hand, seems content not even to discuss new models, while maintaining a top-down command structure enforced by a part-time board that generally sees it’s job as policing the higher education budget rather than growing it. A legislator who might be inclined to dust-off old ideas about a single university system, a chancellor for Idaho higher education or a higher education board devoted to policy would get laughed out of the Statehouse.

As the National Conference of State Legislatures (NCSL) noted in a recent report 20 years ago the United States “topped the world in the percentage of adults age 25 to 34 with college degrees. Our elementary and secondary schools might have been cause for concern but, with students from around the world wanting to enroll, our colleges and universities were above reproach.” No longer.

“Today,” the NCLS report says, “the United States ranks 10th among developed nations in the percentage of young workers holding a post-secondary credential or degree. It’s not that today’s young people are less educated than their elders. Rather, it’s that other nations are doing all they can to boost college participation and attainment and have surpassed the United States.”

Another study, the Times World Higher Education study, concludes that elite United States colleges – Harvard, Stanford, etc. – continue to be among the very best in the world, but the rest of the world is catching up to the rest of American higher education and catching up quickly.

“New forces in higher education are emerging, especially in the East Asian countries that are investing heavily in building world-class universities, so the traditional elite must be very careful,” according to Phil Baty, editor of Times Higher Education. “In the three years that the World Reputation Rankings have been running, we have clear evidence that the U.S. and the U.K. in particular are losing ground.”

So place all this in this global context and recognize that the bean counters in the Idaho legislature have, after a decade of disinvestment, succeeded in downsized state government to a place many of them have long dreamed about. At the same time they seem entirely content to let higher education patch and scratch its way forward. This year there will apparently be no new money to allow the University of Idaho to expand its law school offerings in the business and government center of the state and no new money to work on critical programs to retain kids in school once they have gotten there. The vast majority of the extremely limited new money for higher education – so far the legislature has approved less than the governor requested – will barely allow the state’s colleges and universities to keep up with new enrollment and occupy a few new buildings. This hardly signifies a strategic view of how to apply the essential grease of quality higher education to the sticky gears of a still lagging state economy.

You have to wonder how Idaho will attract the jobs of the 21st Century when the state continues to have one of the most dismal percentages in the country of high school grads going on to college or skills education. Meanwhile, study after study shows the unmistakable connection between the level of educational attainment by Americans and how well they do on measures of economic security and income. It’s not difficult to conclude that while Idaho education policy in recent years has centered on various “reforms” that have often promised improvements without more money, the state’s per capita personal income has fallen from 41st in the country in 2000 to 49th in 2011.

 Most state policy makers seem entirely content with the steadily diminished status quo and they scarcely speak as another proven higher education leader leaves for a greener pasture. You won’t hear many speeches from Idaho political leaders about how the state should aspire to lead the nation (or even the region) in some academic area or find the resources to build a world-class research capability. Quite to the contrary the view seems to be that things in Idaho are just good enough and budgets and aspiration best be held in check. One doubts Duane Nellis or Tim White heard such sentiments in Texas or California when they made decisions to move on.

At the same time, new forces in higher education indeed are emerging. The Chinese, the Koreans and the Indians, just to mention the obvious, understand the links between robust, continually improving higher education and a growing 21st Century economy. Higher education shrinks income disparity, provides one sure path from poverty to a better life and, not insignificantly, creates better, critically thinking citizens. It’s one thing to be ideologically blind to the need for new investment in higher education that might require new resources. It’s quite another thing to be willfully ignorant of the way the world works.


House of Morgan

Too Big to Fail, Too Big to Manage

A little over one hundred years ago J. Pierpont Morgan ran much of the world’s business from an elegant office at 23 Wall Street in New York. The investment and commercial banking operations that J.P. oversaw financed railroads, mining, energy, steel and insurance companies. Morgan was big, so big that when the U.S. economy was on the verge of tanking in 1907, Morgan put a wad of money on the table and saved the day.

In the days before “too big to fail” became part of the national dialogue, the House of Morgan literally was too big and too powerful to fail. Morgan was the banker to the robber barons of the Gilded Age and as such earned the scorn of many a progressive politician. By the early 1930’s, with the old man, J.Pierpont dead since 1913, the House of Morgan finally got its comeuppance. The Glass-Steagall Act, also known as The Banking Act of 1933, passed the Congress, was signed by Franklin D. Roosevelt and the big banks, particularly The House of Morgan, had to separate investment and commercial banking. Glass-Steagall was a clear cut response to The Great Depression and the widespread belief that reckless speculation by some bankers had played a contributing role in the international economic crisis that began in 1929.

It’s worth noting that the Glass in Glass-Steagall was Sen. Carter Glass of Virginia one of the old-style southern conservative Democrats who dominated Congress during much of the New Deal period. Glass, a newspaper editor by profession, served in the U.S. House of Representatives, helped write the Federal Reserve Act and then served as Treasury Secretary under Woodrow Wilson. Franklin Roosevelt wanted the tough, no nonsense, very conservative Sen. Glass to come back to the Treasury in 1933, but Glass preferred to stay in the Senate and devote his attention to improving banking regulation and modernizing the Fed. In short, Carter Glass was an expert legislator in these areas who applied decades of experience to sorting out how the federal government – and this guy was no big government liberal – ought to regulate banking.

American banking was governed by Glass-Steagall until 1999 when the Clinton Administration led the charge to eliminate the last visage of the New Deal-era regulation that separated traditional banking activity – loans, credit cards, deposits – from the substantially more speculative and riskier investment banking that centers on underwriting securities. Then-Treasury Sec. Lawrence Summers called the elimination of the 1930’s law an “update” of old rules, which would create a banking system for the 21st Century. Just how is that “update” working out so far you’d be smart to ask.

Enter Jamie Dimon the man who now presides over the 21st Century firm that J.P. Morgan invented in the 19th Century. Dimon, whose bank lost at least $2 billion recently by speculating in what are not incorrectly called financial “bets,” will testify before the Senate Banking Committee on June 7th to provide, as chairman Sen. Tim Johnson (D-South Dakota) said, “a better understanding of this massive trading loss so we can take the implications into account as we continue to conduct our robust oversight over the full implementation of Wall Street reform.”

Sounds like Congress is finally set to get to the bottom of all this risk taking by Wall Street banks, but wait, don’t bet the house payment just yet.

So far Dimon’s explanation for the big losses his firm suffered has been what we might call the “we were stupid” defense. This from the guy universally regarded as the smartest operator on The Street. Dimon has called the trading – bets more precisely – on extraordinarily complex corporate-bond derivatives – hope Sen. Johnson knows what those are – a “terrible, egregious mistake” and he’s humbly admitted JPMorgan Chase has “egg on our face.”

Dimon is displaying excellent crisis management skills by admitting the obvious, his bank screwed up, but he is also the guy who has repeatedly condemned the Wall Street reforms contained in the Dodd-Frank legislation. That legislation, passed in the wake of the most recent economic collapse, stopped well short of re-imposing the kind of controls that once existed with Glass-Steagall, but Dodd-Frank nevertheless earns the widespread scorn of most Wall Streeters as well as conservative politicians beginning with Mitt Romney. Romney has condemned the JPMorgan risk taking, but also says he’ll work to repeal Dodd-Frank.

Here’s a guess – call it a policy bet – the Dimon appearance before the Senate committee will involve a great many speeches both chastising big bankers and federal regulators, but nothing much will change. Dimon will gracefully sidestep any real responsibility for the betting errors, in part, because everyone knows that even the smartest guy on Wall Street can’t possibly keep track of all the esoteric trading his minions are engaged in across the globe. Many commentators will again bemoan the reckless greed that drives the kind of speculation JPMorgan and its competitors engage in but, when all is said and done, legislators will not be able to tighten the regulatory screws on the excesses of Dimon’s firm and other banking houses, because they too have placed a bet. The Congress – both parties – are gambling that continuing to woo the campaign financial largess of Wall Street, while not engaging in real regulatory reform won’t continue to imperil the American economy. I hope they win the bet, but I wouldn’t put money on it.

Two things to know from the messy details of this new Gilded Age: vast amounts of money is being made by what can only be called the wildest, most uncontrolled speculation since J.P. Morgan reigned on Wall Street and, through all the months of anguish and pain that followed the financial meltdown in 2008, not a single Wall Street player has had to face the legal, let alone the moral, consequences of the kind of reckless behavior that Jamie Dimon says put egg on his face.

The New York Times reports that the fellow who made a bundle while JPMorgan was losing a bundle is Boaz Weinstein, an aggressive hedge fund manager – he made $90 million last year – who was smart enough and gutsy enough to understand that JPMorgan’s “egregious mistake” was another gambler’s opportunity. The Times says of Weinstein: “In the hedge fund game, a business in which ruthlessness is prized and money is the ultimate measure, Mr. Weinstein is what is known as a “monster” — an aggressive trader with a preternatural appetite for risk and a take-no-prisoners style. He is a chess master, as well as a high-roller on the velvet-topped tables of Las Vegas. He has been banned from the Bellagio for counting cards.”

If you believe modern capitalism is a zero-sum game where someone wins and someone loses, little of value is produced, few jobs are created, and vast amounts of money are at stake for a handful of gamblers, then the capitalism of Dimon-Weinstein is just what the regulator ordered. If, on the other hand, if you believe in what I’ll call old fashion capitalism where money is borrowed and invested in real enterprises that employ people and make things, then you might think that Washington, D.C., with its unwillingness to confront Wall Street gambling, is continuing to whistle past the next economic meltdown graveyard.

How else to explain that no one – not a person – has suffered even mild public rebuke, let alone jail time, for the series of decisions in housing and finance that brought much of the American middle class to its knees in 2008 and since. Not only has no one been held accountable, fundamentally – as the JPMorgan bets confirm – nothing has changed with the big banks. In fact, as David Rohde explained recently in The Atlantic, “The country’s biggest banks are getting bigger.”

“Five U.S. banks – JPMorgan Chase, Bank of America, Citigroup, Wells Fargo and Goldman Sachs – held $8.5 trillion in assets at the end of 2011,” writes Rohde, “equal to 56 percent of the country’s economy, according to Bloomberg Businessweek. Five years earlier, before the financial crisis, the biggest banks’ holdings amounted to 43 percent of U.S. output. Today, they are roughly twice as large as they were a decade ago relative to the economy.”

Using World Bank numbers, JPMorgan Chase’s market capitalization is greater than the GDP of 130 of the world’s countries, including New Zealand, Iraq and Vietnam. Given such size and scope, it’s little wonder the big banks behave like sovereign nations.

So, the biggest get bigger and ensure their position as “too big to fail” and even alleged smart guys like Jamie Dimon admit that banks too big to fail are, by definition, too big to manage. The big winners in this modern capitalism are guys like Boaz Weinstein who is a good enough gambler to get himself banned from Las Vegas, a place that really knows how to manage risk, but is, as the Times article says, “practically a featured attraction on Wall Street. [Weinstein] attends galas and charity events, and is sought out to speak at big events. Pictures of him clasping a drink at last night’s party appear with regularity on business Web sites.”

By comparison old J.P. seems like a genuine piker.



An Old Notion Relevant Again

On the downhill side of the Gilded Age in American political and business life – that would have been in the late 1800’s – progressive reformers from Theodore Roosevelt to Woodrow Wilson to Louis Brandeis found fault with the idea and reality of a concentration of economic power.

Brandeis, a great legal advocate before he went on the U.S. Supreme Court in 1916, described the threat of economic concentration by a single, simple word “bigness.” Brandeis entitled one of his greatest works, published in 1913, Other People’s Money and one chapter in that book was called “The Curse of Bigness.”

“Size, we are told, is not a crime,” Brandeis wrote, “But size may, at least, become noxious by reason of the means through which it was attained or the uses to which it is put. And it is size attained by combination, instead of natural growth, which has contributed so largely to our financial concentration.”

Today it is almost an article of faith that “bigger is better,” but the early 20th Century focus on means and uses of economic concentration are just as relevant today as when Woodrow Wilson was in the White House.

Our political and regulatory system seems unable to address the “too big to fail” syndrome and the human abuses that can follow. Much of corporate America seems one big merger followed by another and meanwhile, Walmart, one of the biggest of the bigs, seems to be engulfed by a major foreign bribery scandal in Mexico, Rupert Murdoch’s vast media empire is now defending its political clout in Great Britain as Murdoch execs fend off criminal charges for violating privacy. Criminal charges have been leveled against a BP engineer involved in the Gulf oil spill. You could go on, but the situation is clear – too big to fail can also be too good to be true.

Idaho Sen. Frank Church – he served in the Senate from 1957-1981 – is remembered today primarily for his headline generating investigation of the Central Intelligence Agency in the 1970’s, but Church always considered another of his Senate investigations equally, if not more, important. As chairman of a subcommittee on multinational corporations in 1973, Church delved deeply into the practices, some of them corrupt, of some of the biggest, most powerful companies in the world.

Church’s work cast light on International Telephone & Telegraph’s involvement in the fall and murder of Chilean President Salvador Allende and Lockheed was exposed for its role in a bribery scandal in Japan. Lockheed’s CEO at the time admitted to spending millions on bribes to foreign officials and a Japanese prime minister went to jail in the resulting scandal. The entire chain of events led to passage of the Foreign Corrupt Practices Act in 1977, the U.S. law that Walmart may find itself on the wrong side of today.

Frank Church discovered in that long ago investigation that human nature, driven by an imperative to constantly expand and concentrate economic power has its dark side. In such a world corners get trimmed, ends justify means and we experience an Enron or we end up bailing out a financial institution that can only justify its continued existence because it’s too big to fail.

A thinking man’s conservative, New York Times columnist David Brooks, had a fascinating column this week in which, in a way, he came at this bigness issue from a novel angle. Brooks’ point was that a blind focus on destroying the competition – Brandeis might have termed it how businesses become always bigger – is the flip side of a lack of innovation. When the focus is on constantly and relentlessly growing, creativity goes begging. The need to be bigger inevitably trumps everything, including finding a better way to make a widget.

Brandeis argued a hundred years ago – his was the age of Standard Oil and the House of Morgan – that eventually bigness, that which “is attendant of excessive size,” is inefficient. Eventually, he wrote, “Decentralization will begin. The liberated smaller units will find no difficulty in financing their needs without bowing the knee to money lords. And a long step will have been taken toward attainment of the New Freedom [a reference to Wilson-era reforms in banking and business.]

It may well be in this age of globalization with a bank in Rhode Island tied to the fate of a housing development in Ireland that there is no going back from bigness, but there may be more than nostalgia in longing for a simpler, smaller time.

Frank Church, a liberal Democrat, helped expose the evils of bigness and concentrated power in the 1970’s, just as his role model in the Senate, William E. Borah, had done in the 1930’s. Borah, a Republican progressive, hated bigness, monopoly and concentration of power. He championed small business and decentralization and once said, “When you have destroyed small business, you have destroyed our towns and our country life, and you have guaranteed and made permanent the concentration of economic power, [which in turn ensures] the concentration of political power.  Monopoly and bureaucracy are twin whelps from the same kennel.”

I don’t know about you, but I long for a political leader willing to call bluff on concentrated power. Bigger isn’t always better, it may just be bigger.