Looking Forward In Angst: The Deficit Debate Needs More 'Mark To Market' Accountability

Following a closed-door party caucus, House Speaker John Boehner of Ohio, accompanied by fellow GOP leaders, meet with report
Following a closed-door party caucus, House Speaker John Boehner of Ohio, accompanied by fellow GOP leaders, meet with reporters, on Capitol Hill in Washington, Tuesday, Feb. 26, 2013, to challenge President Obama and the Senate to avoid the automatic spending cuts set to take effect in four days. Speaking at the Republican National Committee headquarters, Boehner complained that the House, with Republicans in the majority, has twice passed bills that would replace the across-the-board cuts known as the "sequester" with more targeted reductions, while the Senate, controlled by the Democrats, has not acted. From left are, Rep. Lynn Jenkins, R-Kansas, Rep. Cathy McMorris Rodgers, R-Wash., Boehner, and House Majority Leader Eric Cantor of Va. (AP Photo/J. Scott Applewhite)

As veteran critics of the post-crash financial industry well know, one thing that has allowed big banks to maintain their rosy outlook is a rule change from the Federal Accounting Standards Board that allows these entities -- still flush with toxic assets -- to avoid having to mark their assets "to market." Instead, banks are allowed to essentially treat these assets as "marked to fantasy," a hoped-for future value that is unlikely to ever be realized.

The banks have fought, and beaten back, any attempt to return to a "mark to market" regime, and it's easy to see why: Reality comes with a cost. Should they ever have to realize the true value of the assets on their balance sheets, their false façade will fall, and it will be revealed that they are more structurally insolvent than they prefer to let on.

This idea of "marking to fantasy" is a useful metaphor to describe how "centrist" pundits are warping what's going on in the federal budget debate in order to hew to their fetishistic idea that both sides are equally to blame for the current impasse. This is not, strictly speaking, true: We are at an impasse because congressional Republicans will not countenance revenue, they will not compromise and they greet any effort to bridge the gap as an opportunity to extract additional demands. This only helps to firm up the impasse.

In order to maintain this façade, these pundits engage in a blend of magical thinking (“Obama needs to show leadership!”) and outright misinformation. The good news here is that other members of the media are helping to force a reckoning, back in the direction of "mark to market." David Brooks's recent insistence that Obama had not presented a plan to offset sequestration opened the floodgates -- numerous critics rightly pointed out that Obama's plan to offset sequestration was right on the White House website. To his credit, Brooks recanted his claim, and as a result, it's now harder to support this false façade.

But more needs to be done to get pundits out of their "mark to fantasy" mindset, and the New York Times' Bill Keller's recent dollop of piffle is a fine example of the way nonsense can linger. In his most recent column, Keller accused Obama of "abandoning" Simpson-Bowles, campaigning solely on raising taxes and offering nothing on entitlement reform:

If Obama had campaigned on some version of Simpson-Bowles rather than on poll-tested tax hikes alone, he could now claim a mandate from voters to do something big and bold. Most important, he would have some leverage with members of his own base who don’t want to touch Medicare even to save it.

As Greg Sargent points out, this is all quite ridiculous. Obama's February budget "contained hundreds of billions in spending cuts -- including cuts to Medicare." The president asserted his desire to use Simpson-Bowles as a framework for a Grand Bargain in his speech at the Democratic National Convention. That sequestration offset proposal contains spending cuts and entitlement reforms in the form of Medicare cuts and chained CPI. Pushback, like the sort Sargent offers, is important to bringing the debate back into the real world.

There are stirrings that a return to reality might be possible. Over the weekend, Ezra Klein wondered if maybe the congressional GOP just doesn’t know what Obama is offering, pointing to an unnamed Republican legislator who said he’d take the White House more seriously if they offered chained CPI (CCPI) as part of the deal. As Klein knows, that's specifically on offer. But Jonathan Chait warned that even if Obama could "get hold of Klein's mystery legislator and inform him of his budget offer, it almost certainly wouldn’t make a difference.”

"He would come up with something -- the cuts aren’t real, or the taxes are awful, or they can’t trust Obama to carry them out, or something," Chait wrote.

Hours later, Klein got to observe in nature the process Chait had only theorized. Republican strategist Mike Murphy penned a column for Time in which he asserted that Obama needed to utter "six magic words" on entitlements to break the budget impasse with Republicans: "some beneficiaries pay more" and "chained CPI."

From there, Murphy went through the elements of Chait's prophecy like a grieving widower going through Kubler-Ross. He insisted, wrongly, that Obama had "refused CCPI as part of the fiscal cliff deal," then called CCPI a "small beans gimmick," then insisted that "Obama must move first on spending, earn trust" -- which ... he did. As Klein points out, "Over the course of 2011, Obama signed into law a set of bills that cut about $1.8 trillion from discretionary spending, and that included no tax increases at all."

Recall what Chait said would happen if the Republican legislator in my column was forced to react to the fact that Obama has endorsed chained CPI: “He would come up with something – the cuts aren’t real, or the taxes are awful, or they can’t trust Obama to carry them out, or something.” Check, check, and check.

Nice and nicely done. But you can see the structural disadvantage that those seeking "mark to market" accountability in this debate face. It takes a Marvel team-up of three different reporters, from three different news organizations, to perform this elementary act of real-keeping. Meanwhile, Bill Keller can, in one column, undo the work of Harwood, his New York Times colleague.

There's an easy economy to the centrist pundits' work: They just keep writing the same piece, over and over again. So getting the balance sheets of the centrist clique back into balance is going to be a long, hard slog. But every little bit helps to slowly deconstruct this false façade.

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This story appears in Issue 39 of our weekly iPad magazine, Huffington, in the iTunes App store, available Friday, March 8.



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