Republicans Get a Little 'Hope' of Their Own

The Republican governors gathered Saturday night for a dinner in Washington, D.C., in advance of their Monday fundraising gala and in the midst of the winter meeting (with their Democratic colleagues) of the National Governors’ Association.  


Saturday’s event with many of the nation’s prominent GOP governors in attendance (Sarah Palin and Arnold Schwarzenegger were not present, however) was time for some celebration and for an economics tutorial from featured speaker Steve Forbes.

There were two causes for celebration: first, an announcement from Mississippi Governor Haley Barbour that $10.25 million had been raised by the Republican Governorss Association (RGA), and second, a revived sense of unity and purpose among Republicans in Congress and across the country. In introductory remarks, South Carolina Governor Mark Sanford singled out Minority Leader John Boehner (R- OH) in the crowd for kudos for doing a “remarkable job to hold the troops together” in opposing the stimulus bill in the House.  

The dinner followed a spat earlier in the day between Maryland’s Martin O’Malley and Sanford. O’Malley had lashed out at Republicans (“fringe governors”) who were considering whether to accept all of the money available to them from the recently passed stimulus bill. O’Malley had declared that if these governors didn’t want to do their part “they need to step aside and not stand in the way of the nation’s interests.” Sanford had retorted that it was the supporters of the stimulus who represented the “fringe.” And  in his introductory remarks Saturday night Sanford struck back again, observing, “I don’t see folks who are really wired to step aside.”  


But most of the Saturday evening event was devoted to an economics lesson from Forbes. Forbes called out those he held responsible the current economic mess. Topping his list: former Federal Reserve Chairman Alan Greenspan and current Fed Chairman Ben Bernanke, whom Forbes claimed were beguiled by theories of “hidden worldwide demand” for liquidity. He said they were guilty of promoting a “very speculative monetary policy” which had worldwide implications including a bubble in commodity prices. 

He also took a shot at the wizards in the housing market who, he joked, introduced a new type of mortgage — the “why have an income?” mortgage. Much of Forbes’ ire was directed at not a person but a rule, the so-called “mark-to-market” accounting rules which require financial institutions to constantly adjust their assets to the market value of those assets. And ending his list, Forbes decried talk of bank nationalization and an erratic series of bailout plans which have given the financial sector “cardiac arrest.”  

Forbes, however, argued that the fix for our current predicament is rather easy and the recovery can be quicker than many imagine. His solution is to eliminate the mark-to-market accounting rules, adjust certain SEC regulations (reinstitute the “uptick rule” and enforce prohibitions on “naked short selling”), and send the Fed out to aggressively buy up mortgage-backed securities. Then he says individuals and lenders can renegotiate mortgages in the free market place and the financial sector can regain its footing.  


While Forbes was providing an erudite economic analysis, the governors assembled there seemed most occupied with looming fiscal problems in their states and future political races. Each is navigating the precise course he intends to take to address the Obama administration’s policies, both those enacted and those contemplated.  

Minnesota’s Tim Pawlenty makes no bones about his approach to the stimulus bill: “It’s a bad bill but it’s the law,” he told me. While he proposed a tough budget which sought to attract business and avoided tax increases, the stimulus bill will now change the fiscal outlook. For example, rather than the modest increase in education which he recommended or the small cut which state Democrats suggested, Minnesota now will get a large chunk of cash for its schools.  

As for politics, Pawlenty plans on campaigning for Republicans in the Virginia and New Jersey governor races this year where he thinks Republicans will be fielding strong candidates. Asked about his own presidential prospects, he eschewed the usual denial of any interest and said, “I’m going to take some time to think about it.” He then quickly added that he was focused on his state’s immediate budget needs.  

Sanford, along with Governors Haley Barbour of Mississippi and Bobby Jindal of Louisiana, has expressed the view that they might not use all the stimulus money, especially funds for additional unemployment insurance. Both in remarks to the group and in comments afterwards to reporters, Sanford contended that governors “are now doing what Congress should have done in going line by line through the stimulus bill” to see what makes sense for each state.  


I asked Sanford what the reaction in his state was to the proposed mortgage bailout and if there was a “Rick Santelli” backlash against it. He chuckled, observing that Santelli’s reaction had certainly raced through the blogosphere and the news because it hit “a live nerve there.” While acknowledging that there was legitimate concern that people would be subsidizing those who bought houses they couldn’t afford, he said it was still too early to judge the reaction.

“It is still too fresh,” he repeated. As for the bank bailout, he stressed that what was needed was “certainty.” “They need to know what the rules are going forward,” he explained. That lack of certainty he said is now “mirrored in the equity markets” which took a beating this week.  

As for the attendees at the Saturday dinner the mood was generally jovial, in part because of the fundraising news. But a month into the Obama administration there are other reasons for optimism. One veteran of the Bush White House described the high hopes for off year governors’ races. He recalled that in 1993, Christie Todd Whitman won in New Jersey as did George Allen in Virginia, which helped build momentum for the GOP comeback in the Congress. While no one is predicting that the Republicans will recapture the majority in either the House or Senate in 2010, this is a group which sees “a deep bench of talent” in the states, as RGA’s Executive Director Nick Ayers refers to the Republican governors.  


Observing a White House which has not yet found its footing, Republican governors and their supporters appear to have an ample supply of something which has been lacking of late among conservatives — hope.


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