Taking a Stand

by Rand Paul

  The other way term limits can become a reality is if a president is elected with a mandate that includes them. As I begin my run for the presidency, one message that I will take from coast to coast is a call for a balanced budget amendment and term limits. I believe that if a candidate were to win the presidency on this platform we could finally get it done.

  I am not aware of any candidate for president making term limits a leading cause in a national campaign. I aim to do just that in the coming year.

  How About Reading the Bill?

  People sometimes like to rail against Congress for not getting enough done, that not enough bills are passing. While I understand their point, after being here for four years I can tell you that’s not the biggest problem in Congress. Not even close. The problem is in what they do pass, and that almost no one here has read the bill before it passes. Not all of Congress’s reluctance to pass bills is bad, in my estimation. I’m against enacting laws that expand government, raise taxes, or impede personal liberty, but some of Congress’s ineptitude is due to tribal righteousness, petulance, apathy, and plain old laziness. Early on, my staff and I began to put together legislation based on the novel idea of having senators read bills before they vote on them. I’m not joking.

  I once received a 600-page highway bill on the morning of the vote. Six hundred pages to read and I was given a couple of hours to read it! On the way over to the vote, I passed two senators in the hallway of the Russell Senate Office Building who were heading back to their offices. They had been on their way to vote when they found things written into the bill that affected their states and were trying to figure out a last-minute way to get them out. This happens all the time. During the debate before the vote on Obamacare, Nancy Pelosi famously said, “We have to pass the bill so that you can find out what is in it.” No wonder Congress has an 11 percent approval rating. We don’t even know what we’re voting on. So my Read the Bill legislation proposed that, before calling a vote, Congress had to wait one day for every twenty pages of legislation, which would provide plenty of time to read every bill before we vote on it. So, a 2,000-page bill like Obamacare would require a hundred days of reading time. That would keep us busy.

  Maybe if we did a little less voting on bills we haven’t seen, and a little more evaluating and debating the bills, the product up here would be better. It can’t be much worse.

  Along with term limits and the reading bills, another change that has to be made is redistricting. When districts are gerrymandered, people are often elected for life, and sometimes in spite of behavior that would get them fired in any private business. To hold on to power, state legislatures have drawn up congressional districts that look like sea creatures. A district in Illinois is shaped like an open clamshell. In North Carolina there is a district that connects the urban centers of several cities, runs over a hundred miles in length, and looks like an eel.

  For the lengths state legislatures go to ensure “safe” seats for their prospective parties, they might as well be stuffing the ballot box. What we need is computer software to design legislative districts fairly and without any connection at all to voting patterns. Currently, gerrymandering splits counties, cities, and communities, even individual streets.

  Today, 80 percent of districts are unwinnable by a candidate of the opposite party. It takes a sea change, to continue the metaphor, of public opinion to affect the maps, and even then there is often a lag time of over ten years. For example, in the 1980s Texas turned Republican, culminating with George W. Bush receiving over 60 percent of the gubernatorial vote. But the congressional delegation continued to be 60 percent or more Democrat for ten years.

  Above the Law

  There is nothing more egregious that happens on Capital Hill than Congress passing laws that include exemptions for senators and representatives. In my opinion, it’s the height of arrogance.

  If it weren’t for the book Throw Them All Out by Peter Schweizer and a 60 Minutes interview of Schweizer that followed the book’s publication, Congress might still be exempt from federal statutes guarding against insider trading. Here are some of the other laws Congress holds or held itself above: the Social Security Act of 1935 (up until the 1980s), the National Labor Relations Act of 1935, the Equal Pay Act of 1963, the Freedom of Information Act of 1966, the Privacy Act of 1974, and the Ethics in Government Act of 1978.3

  In the Federalist Papers essay 57, James Madison warned us that we would remain free only as long as lawmakers live by the laws they pass. It’s not asking much, is it?

  How about a bill that says Congress shall pass no law that does not bind members of Congress as well? I have introduced just such a concept in a proposed amendment to the Constitution.

  Of course, if my legislation came to a vote, the first thing Congress would do is exempt itself from it. As the late, great congressman Henry Hyde once said, “Congress would exempt itself from the law of gravity if it could.”

  I know the ideas above are bold, and it will take something of a political upheaval for them to be enacted. But I also know something about political upheavals, and I know the good that can come out of them. I’ve also seen what sticking to the status quo can do.

  Much of this recalcitrance in Washington comes from the contentious relationship between the legislative and executive branches. Yes, some of it is politics. But much of it is leadership. Along with a new direction and new ideas and lawmakers, I believe we need a change of heart at the top. Rudderless, our great country struggles with core issues that divide us.

  The Fed

  One of the first bills I introduced was the Federal Reserve Transparency Act of 2011, also known as the Audit the Fed bill. My father championed this bill for more than a decade before finally getting it to pass the House with a huge bipartisan majority. Unfortunately, Harry Reid let it die in the Senate. I asked the then Senate Majority Leader time and again for a vote. On my Facebook page, I even posted Senator Reid’s floor speeches from the 1990s in favor of auditing the Fed. He wouldn’t budge, but I wouldn’t give up. I scheduled appointments with him. We sat by the roaring fire in his office and I tried to convince him to give me a vote. He just sat there, listened, and wagged his head no. So, a bill that received more than 350 votes in the House was never allowed to see the light of day in the Senate.

  There is something very wrong with not allowing a vote on a bill that passes the House with over three hundred votes and has the support of the overwhelming majority of the American people. It is a bipartisan bill. It is exactly the kind of legislation we should be moving in Washington, but we won’t. Our system is broken. Too many career politicians. Too many people with partisan political scorecards in their pockets. Too many people who are themselves in some special interest’s pocket.

  It amazes me that anyone would oppose a simple call for transparency at the Federal Reserve. Why would they want the movement of America’s money supply kept secret? Opponents argued that transparency would undermine the Fed’s independence. It seems they’ve forgotten that Congress created the Fed, and that it’s Congress’s job to oversee the central bank. Many of these same opponents voted for a new agency called the Consumer Financial Protection Bureau that would also operate without congressional oversight and be funded by, get this, money printed up by the Fed! Talk about blind trust. Just let the fox watch the chickens, but make sure you close the door to the coop to give him some privacy.

  All of this happens in utmost secrecy and without accountability. The only oversight of the Fed currently in place is a yearly audit by the Office of the Inspector General. Below is an exchange between former Florida congressman Alan Grayson and the then Federal Reserve inspector general Elisabeth A. Coleman. This illuminating Q and A occurred some months after the financial collapse of Lehman Brothers.

  Rep. Grayson: What about Bloomberg’s report that there are trillions of dollars in off-balance sheet transactions that the Federal Reserve has entered into since last September? Are you familiar with those off-ba
lance sheet transactions?

  I.G. Coleman: We do not have jurisdiction to directly go out and audit Reserve Bank activities specifically.

  Don’t let anyone tell you we already have an audit of the Fed. No meaningful audit of the Fed exists, and when the primary auditor and overseer of the Fed was asked about nine trillion dollars, she had no clue what had been purchased with nine trillion dollars.

  Is there a chance that the Fed only has our best interests at heart? Sure. But when trillions of dollars change hands, wouldn’t you want to know who gives and gets the money and if anyone enriched themselves in the process? We’ll never know until we get a real audit of the Fed. The House has overwhelmingly and in a bipartisan vote passed Audit the Fed. With the Republican majority in the Senate, I will get a vote on Audit the Fed in 2015. That’s a promise.

  There’s another promise concerning the Fed that I will make, and that is: I’ll work to stop the revolving door from Wall Street to the Treasury to the Fed and back again. The Fed and its captains conduct crony capitalism at its worst. “The most powerful entity in the United States is riddled with conflicts of interest,” writes Senator Bernie Sanders on his website. Senator Sanders goes on to explain that the Government Accounting Office detailed instance after instance of top executives of corporations and financial institutions using their influence as Federal Reserve directors to financially benefit their firms and, in at least one instance, themselves. “Clearly it is unacceptable for so few people to wield so much unchecked power,” Sanders writes. “Not only do they run the banks, they run the institutions that regulate the banks.”4

  We have former secretaries of Treasury who go from government to Wall Street, pocketing hundreds of millions of dollars, and federal regulators on all levels who are prone to what’s called “regulatory capture,” the practice of going soft on companies they’re supposed to be keeping an eye on to boost their prospects of a job down the road. It’s hard to imagine that the Fed isn’t rife with conflicts of interest.

  Maybe you don’t believe that there are conflicts of interest at the Fed. But if you don’t, then tell me how they decided to bail out Bear Stearns but not Lehman Brothers. Taxpayers deserve to know what kind of “distressed” assets the Fed is buying. We deserve to know if these “deals” involved friends or acquaintances. We deserve to know if there are liabilities from companies Fed employees once worked for.

  I often hear people say that greed was the primary reason for the 2008 housing crisis. Greed is simply a pejorative term for self-interest. It wasn’t a strange accumulation of greed that brought on this crisis. To explain how so many people acted in concert to cause a boom in housing you need to look at something systemic that permeated all decision making at the time, a cause that influenced every decision. Without question, the universal factor behind the collapse was government-fixed interest rates, which were fixed below the market rate and were not allowed to rise in such a manner that would have naturally curtailed the boom. Self-interest, or even greed, didn’t begin the boom. Government manipulation of interest rates did.

  By 2001, Federal Reserve chairman Alan Greenspan had lowered the interest rate to a measly 1 percent. We had just come out of a spending bubble in the late 1990s, and pressure from the Clinton administration and inflation worries influenced his decision. He then kept the interest rate at 1 percent for the next three years, and when he finally raised it in 2004, he did so only by .25 percent. So what effect did low interest rates have?

  Interest rates are like insulin. In medicine, we have a concept we call homeostasis, which means maintenance of balance. When you eat a meal your blood glucose rises and insulin is stimulated to rise. As a consequence, your blood glucose falls. In a free market, as the demand for more money occurs the price of money (interest rates) should rise, which slows the economy. You get a gentle, cyclical nature to economic growth. What happens if interest rates are kept artificially low by government? The feedback loop breaks and the economy expands without any checks or balances, which is exactly what happened during the housing boom. The Fed fixed interest rates below the market rate, and with the feedback loop severed, housing prices soared. The crash came when it was finally revealed that there was nothing of substance backing the loans. It’s like the Hans Christian Andersen story “The Emperor’s New Clothes.” When the public discovers that the emperor isn’t wearing any clothes the whole belief system falls apart.

  Congress encouraged and abetted the boom by legislating lenient lending practices. Large fines were levied on any bank that refused to go along with zero down-payment loans. Banks didn’t complain because the government pledged to insure the loans.

  Then, after the crash, the Fed’s bailout of banks and brokerages like AIG was conducted in such secrecy no one really knows to this day how many trillions of dollars and zero-interest loans it doled out. We do know this: the bailout the Fed conducted made the Troubled Assets Relief Program (TARP) and its original $700 billion handout look like a weekly allowance from Dad. Some sources maintain that the Fed leveraged more than $7 trillion to banks. The Fed’s balance sheet grew by over $4 trillion.

  At first blush, you might say that having assets is good, right? Well, not if those assets are bad car and home loans and derivatives that no one else will buy, and especially not if the “assets” are purchased with an IOU by the Fed. Those who defend the Fed say there is no credit risk. No? How about the $4 trillion they spent on bad mortgages?

  That vast sums of taxpayer money are used in such a hidden and fishy manner is inexcusable under any circumstance, but that it’s done by an agency that can’t keep its own fiscal house in order is preposterous. Estimates have the Fed overleveraged between 56:1 and 90:1.5 How bad is that? Well, consider that Lehman Brothers was overleveraged 30-1 on the day it shut its doors.

  The noteworthy quote ascribed to Ludwig von Mises, the Austrian economist, can be applied to the Fed perfectly. “Government is the only agency that can take a valuable commodity like paper, slap some ink on it, and make it totally worthless.”6

  Guess who is adversely affected the most by this? You, the middle class. As the money the Fed controls changes hands, the moneyed class gets richer and the middle class gets shortchanged. President Obama plays the partisan game and speaks of income inequality and blames Republicans. Yet income inequality has gotten worse under his administration.

  I believe in the free market. I believe it’s the engine that will pull the middle class from its rut and return to it the promise this great class of American workers once held. That promise has been diminishing by the decade, one of the great travesties of our time.

  I have no sympathy for the banker who made $100 million a year while his or her bank plunged into bankruptcy, only to be bailed out by the taxpayer and then, without missing a beat, goes back to making millions of dollars. I’m all for people profiting from success, but in a true free market they are also punished for their mistakes. Only in a world of crony capitalism would bankers whose faulty decisions caused bankruptcy be allowed to cash out as the middle class absorbs the losses. Capitalism isn’t the problem. The problem arises when cronyism creates special playgrounds and safe niches for a few connected individuals.

  Those bankers who made millions selling derivatives should have been the first to suffer the reversal. Anyone who committed financial crimes should be punished. No one should get a free pass. As in so many sagas, the connected rich didn’t get a scratch. They convinced Congress to have the middle-class taxpayer bail them out and went on as if nothing had happened. It’s infuriating. Not only are the cronies protected from suffering for their mistakes when they’re at fault, no one bothers to examine the underlying causes of the collapse.

  I entered politics and embraced the Tea Party movement primarily because I abhorred the idea of big government taking money from the middle class to bail out the big rich banks. During my Senate primary campaign, I wrote that federal bailouts reward inefficient and corrupt management, rob taxpayers, hurt smal
ler and more responsible private firms, exacerbate our budget problems, explode national debt, and destroy the U.S. dollar. Even more importantly, any bailout of private industry is in direct violation of the Constitution. It is a transfer of wealth from those who have earned it to those who have squandered it.

  Millions of people lost their jobs because of the 2008 crisis. Millions of lives were irreparably changed for the worse, and millions of people suffer from fear that it will happen again. They insist on saying that the economy has rebounded. But don’t tell that to the financially wounded middle class. People are still looking over their shoulders and, given the same policy and secrecy in place at the Fed, I don’t blame them.

  One of the things that baffles me about the so-called recovery we are having is the sheer brazenness of the Obama administration and the willing participation of the press in distorting the truth. The truth is that even though unemployment may appear to be declining a bit over the last year or two, it is simply not true that more people are working. The drop in those labeled “unemployed” is due only to them dropping out of the workforce—not because they are finding work.

  What kind of leader claims victory in the fight to create new jobs by using the number of people who have been looking for one for so long that they have simply given up? This is symptomatic of the problem in Washington. Everyone is looking to take credit, even for something that hasn’t actually happened. No one will tell the truth.

  The truth is more people are out of work. Fewer new jobs are being created. They can’t tell you that because then you’d ask why, and the answer is the government is taxing and regulating the job creators out of our country.