Davos, Congress and National Education Standards

How well trained is the Congressional mind? As this nation faces global competition and education quality takes a center stage, education standards are a hot topic. But how well educated is a Congressman these days? I’m thinking of two examples to illustrate needed improvements in the education of a US Congressman.

Math uses symbols to explain relationships. A is to B as C is to D. A bears a relationship to B that is the same as C’s relationship to D. In the literary realm a simile is not quite the same as a metaphor. A simile is more like the math sentence, expressing a direct relationship.

Barney Frank told an interviewer at Davos that there will be no more taxpayer bailouts now that we have the Resolution Authority. Congressmen of both parties have made the same claim. In the Congressional realm the Dodd-Frank Act’s “Resolution Authority” is like the Social Security Trust Fund. The Social Security Trust Fund is also only a name. Just because it is called a “trust fund” by Congressmen doesn’t mean it acts like a real trust fund. It is merely meant to create a sense of comfort in a voter’s mind that Congress is setting aside funds to pay for future Social Security benefits. In reality the system was and still is pay-as-you-go. In the Land of Deficit Spending Social Security’s excess of revenues over expenditures (a shrinking number as Baby Boomers age) merely means those excess funds are available to fund other current government spending. They won’t be there in the future.

Resolution Authority contains the root “resolve”. “To resolve” is a verb that pertains to dealing with an issue AFTER it arose. If we have another big financial institution in crisis, those in Congress are going to find themselves in the hottest political water in a century. The Federal Reserve will have to bail once again because little was done to address systemic risk. Dodd-Frank did make bailing easier for the Fed.

The biggest banks remain the biggest. Derivatives still tie them together like idiot mittens through counterparty risk. Hedge funds still use them to huge and undisclosed degrees. And their executives still bear little true personal accountability for the risks their organizations take. Congress may have added the Resolution Authority so that they can “throw the bums out” if the financial institution fails. But when taxpayers are again up to their necks in alligators, who will have been responsible for draining the swamp?

Just because Congressmen say so doesn’t mean a bailout will never be allowed again. Voters understand this. If another big financial institution were to fail, the Fed would have to bail out that institution’s counterparties again, which means the biggest derivatives dealers, which means at least the top five US bank holding companies. Otherwise we would face an economic nuclear winter.

As we debate how to improve our national education standards, let us hope we can also debate how to have honest, fact-based and rational legislation out of our Congress.