Clark Packard on FBN Varney & Co

Clark Packard discusses the implications of President Trump’s announcement on steel and aluminum tariffs with Stuart Varney.


Competing Mortgage Credit Scores:  A decision for those who take the risk


The use of credit scores by Fannie Mae and Freddie Mac, as one part of their decisions about which mortgages they will buy and guarantee, is by nature an “inside baseball” mortgage-finance discussion, but it has made its way into the regulatory reform bill passed by the Senate March 14.

How such scores are statistically created, how predictive they are of loan defaults, how to improve their performance, whether to introduce new scoring methods and the relative predictive ability of alternative methods are above all technical matters of mortgage credit-risk management. These questions are properly decided by those who take the mortgage credit risk and make profits or losses accordingly. This applies to Fannie and Freddie (and equally to any holder of mortgage credit risk with real skin in the game). Those who originate and sell mortgages, but bear no credit risk themselves, and those with various political positions to advance, may certainly have interesting and valuable opinions, but are not the relevant decision makers.

Should Fannie and Freddie stick with their historic use of FICO credit scores, or use VantageScores instead, or both or in some combination?  Naturally, their own scores are favored by the companies who produce them and they should make the strongest cases they can. Should Fannie and Freddie more experimentally use other “alternative credit scores” different from either?  This can also be argued, although it remains theoretical.

The Senate bill requires Fannie and Freddie to consider alternative credit-scoring models and to solicit applications from competitive producers of the scores for analysis and consideration. That is something a rational mortgage credit business would want to do from time to time in any case, and in fact, Fannie and Freddie have analyzed alternative credit scores. The bill further requires that the process of the review and analysis of credit score performance must itself be reviewed periodically, which is certainly reasonable.

Thus the bill would require a process. But when it comes to the actual decisions about which credit scores to use and how to use them in managing the credit risks they take, Fannie and Freddie themselves are the proper decision makers. In my view, they would not necessarily have to make the same decision. Moreover, either or both could decide to run pilot program experiments, if they found that useful.

The Federal Housing Finance Agency (FHFA), Fannie and Freddie’s regulator and conservator, has in process a thoughtful and careful project to consider these questions, has solicited and is gathering public comments from interested parties and displays a very good grasp of the issues involved. But I do not think that, at the end of this project, the FHFA should make the decision. Rather, Fannie and Freddie should make their own credit-scoring decisions, subject to regulatory review by the FHFA—and of course in accordance with the regulatory reform bill, if it becomes law, as I hope it will.



The Senate: At War with Itself!?

In this Legislative Branch Capacity Working Group session, Senate experts James Wallner and Molly Reynolds will consider the reasons for its dysfunction today. The wide-ranging discussion will touch on partisan dynamics, recent procedural changes, and the way in which party leaders try to control the Senate today.


Red State = Clean Energy: How Market Driven Clean Energy is Transforming the Texas Electric Grid

On March 8, R Street, the Texas Clean Energy Coalition and The American Conservative brought together a panel of experts to discuss how Texas has combined the nation’s most competitive electricity market and the highest level of wind generation with a cheap and reliable electricity system. Josiah Neeley moderated the panel, which included Mayor Dale Ross of Georgetown, Texas, former Texas Public Utilities Commissioner Ken Anderson, Cheryl Mele of the Electric Reliability Council of Texas, and Elizabeth Lippencott of the Texas Clean Energy Coalition.


Trump’s steel tariffs are different from Bush’s – they’re worse


President Donald Trump’s decision to move forward with tariffs of 25 percent on imported steel and 10 percent on imported aluminum has drawn comparisons to the steel tariffs President George W. Bush levied in 2002, which were widely panned as ineffective. As the Trump administration implements its own futile protectionist scheme, it is important to understand why these tariffs likely would inflict even more pain on American consumers than Bush’s did.

Legal Authority

President Bush’s tariffs on imported steel were imposed under Section 201 of the Trade Act of 1974. Section 201 tariffs, also known as “safeguards,” can be invoked when a surge of imports threatens to injure a domestic industry. Safeguards are temporary, do not apply to individual countries and the levy usually declines over time. Safeguards were recently imposed by the Trump administration on imported washing machines and solar products.

By contrast, Trump’s steel and aluminum tariffs will be implemented under Section 232 of the Trade Expansion Act of 1962. Section 232 authorizes the U.S. Commerce Department to investigate whether imports of a particular item pose a threat “to the national security.” If the department finds that they do, the president has 90 days to propose a remedy, with wide latitude for what that remedy might entail. Unlike safeguards, tariffs issued under Section 232 are not temporary and do not decline over time.

Safeguards are widely used internationally under rules recognized by the World Trade Organization, which also adjudicates disputes on their fairness. China, Japan and the European Union successfully challenged the 2002 steel safeguards at the WTO and the Bush administration withdrew the tariffs after only about 18 months.

The General Agreement on Tariffs and Trade, the precursor to the WTO, provides for a national security exemption, which was created at the United States’ insistence. Codified in Article XXI, the exemption is extremely broad and widely considered “self-judging” – that is, the WTO’s Dispute Settlement Body is exceedingly unlikely to strike down a country’s claim that the import of some item threatens their national security. Invocations of the national security exemption by member-nations have been challenged a handful of times, but there has never been a binding GATT or WTO decision against them.

For these reasons, many legal scholars believe the national security exemption is the single most powerful exception to international trade rules. Thankfully, the authority has been invoked only sparingly and generally in good faith over the past 70 years. As the world’s largest and most important economy, and as the architect of the national security exemption, the United States has a special responsibility to invoke Article XXI judiciously. A haphazard invocation made on weak grounds could jeopardize the rules-based global trading system and open the door to similar claims by other nations.

The Trump administration now threatens to upend that delicate balance, as the national security case to restrict steel imports is particularly thin. The largest U.S. suppliers of steel are allies and the nation has a number of agreements that require other countries to provide supplies in case of a true emergency. In a letter from Defense Secretary James Mattis to Commerce Secretary Wilbur Ross, the Pentagon chief noted that the department “does not believe that the findings in the [Section 232 report] impact the ability of DoD programs to acquire the steel or aluminum necessary to meet national defense requirements.” Mattis further urged restraint in imposing tariffs, so as not to damage relationships with key allies.

Job Loss

The data vary, but it’s clear the Bush steel tariffs sparked significant job losses, particularly in steel-consuming industries. This is important, because workers in those industries vastly outnumber steel-mill workers. Gary Hufbauer of the Peterson Institute for International Economics estimated about 3,500 steel-industry jobs were preserved by the 2002 tariffs, but 12,000 to 43,000 jobs were lost. According to the Trade Partnership, an economic consulting firm, about 200,000 jobs and $4 billion in wages were lost due to high steel prices. One author of that study pegged the number of jobs lost due directly to the steel tariffs at 60,000.

More recently, the Trade Partnership projected President Trump’s steel and aluminum tariffs will reduce net employment by nearly 146,000 jobs. Employment in the steel and aluminum sectors would rise by 33,464 jobs, but at the cost of 179,334 jobs throughout the rest of the economy. Two-thirds of the job losses would affect low-skilled and production workers. And these projections don’t include any of the effects from foreign retaliation against American exports, which already have been threatened for items ranging from bourbon to Harley Davidsons.

The Forest for the Trees

Bush’s steel tariffs came in concert with his administration’s work to secure Trade Promotion Authority, which passed in 2002 by narrow margins. The TPA was then used to negotiate various free-trade agreements, most notably the Dominican Republic-Central America Free Trade Agreement (CAFTA). In other words, Bush accepted some protectionist steel measures to serve the broader goal of trade liberalization. This wasn’t a unique phenomenon. President Ronald Reagan countenanced certain protectionist measures with a commitment to broader trade liberalization, including laying the foundation for the Uruguay Round and the North American Free Trade Agreement (NAFTA).

That is not the case today. Trump has professed hostility to trade liberalization since the 1980s and his actions in office have matched his rhetoric. The United States backed out of the Trans-Pacific Partnership (TPP) and the administration has threatened to pull out of the U.S.-South Korea Free Trade Agreement (KORUS) and the WTO. It continues to threaten to withdraw from NAFTA while renegotiating the pact with unreasonable demands on automotive rules-of-origin and a sunset clause. Unless the president’s statement at Davos regarding the United States potentially rejoining the TPP comes to fruition, it’s hard to see how today’s steel and aluminum protectionism could serve the broader goal of trade liberalization.


The costs of protectionism are well-known – a loss of economic freedom; higher prices for consumers and businesses; foreign retaliation against exports; job losses; and declines in productivity and output. We can expect all of the above from the steel and aluminum tariffs. The Bush administration’s foray into steel protectionism failed spectacularly, but the toll the Trump tariffs will exact will likely be even worse.

Image by Joseph Sohm


William Murray on the Climate Lede: Is the Carbon Tax Dead?

On March 6, 2018, Federal Energy Policy Manager William Murray appeared on E&E’s podcast “The Climate Lede” to discuss the fate of the carbon tax. Murray spoke about the low chances of a carbon tax being passed at the state or federal level in the next several years in the wake of the Washington State Senate’s recent failure to pass a carbon tax proposal championed by Democrat Governor Jay Inslee.


San Francisco wants redundant automated vehicle demo because reasons


*Marc Scribner co-authored this piece.

The City of San Francisco is special. How special? In spite of having no evident expertise, the City’s mayor, Mark Farrell, has asked the manufacturers of “autonomous vehicles” to submit to local “safety assessment exercises” before deploying their vehicles. While there will be a strong urge among many Bay Area-based firms to go-along with the mayor’s demand, they should resist. Compliance may seem benign, but risks setting a dangerous precedent for the industry as it moves toward nationwide deployment.

The crux of the problem is twofold. First, local jurisdictions simply are not qualified to evaluate what is “safe” behavior when it comes to vehicle design, safety or performance. For this reason, state transportation regulators have smartly deferred to their federal counterparts at the National Highway Traffic Safety Administration (“NHTSA”) on such issues. And, to their credit, both NHTSA and Congress have been actively working to bring highly-automated vehicles (“HAV”)  into the existing regulatory fold.

For that reason it’s astonishing, if not unsurprising, that San Francisco’s political establishment seems to think it can master what state regulators recognize is beyond their core area of competency in the mere weeks before vehicles receive state deployment permits from the California Department of Motor Vehicles. To be clear, San Francisco cannot and will not be able to master anything of the sort.

What’s more, in the letter, the City provides a bogus rationale for the “safety assessment exercise.” The City claims that the exercise would provide manufacturers an opportunity to educate first responders and others about how to interact with highly-automated vehicles in the event of an emergency.

Yet, that requirement is already met by the filing of a “law enforcement interaction plan” at the state-level as a condition of being granted a permit. In other words, as soon as permits are granted, San Francisco will be notified of where vehicles will operate, how vehicles will operate, and the ways in which first responders should interact with them in the event of an emergency. Farrell’s “safety assessment exercise” is clearly redundant of existing state-level regulation.

Therefore, since none of this is actually about safety, it appears that the City is attempting to scramble for authority that more appropriately rests elsewhere. Which leads to the second major problem presented by Farrell’s request. Should manufacturers comply, other sub-state jurisdictions will be empowered to make similar demands.

It is not clear that Farrell’s request has much legal significance, since he cites no binding authority and notes that the state has – rightly – not given him the power to regulate the technology. However, an act of compliance would certainly be given precedential significance in the eyes of other jurisdictions. Sad will be the corporate counsel who is faced with the prospect of explaining to Los Angeles why her firm only intends to comply with San Francisco’s request.

Central to the development of HAV regulation has been the attempt to avoid a “patchwork” approach to oversight. While the danger of a patchwork at the state-level is significant, the danger of different requirements at the sub-state level is even greater. Consider, in California alone, there are 4,435 local governments. Each of those entities has the same legal, though not political, power of San Francisco. Therein lies the risk of compliance with Farrell’s demand. The sheer scale of the compliance demands created by taking such an approach could effectively grind HAV deployment to a halt.

To avoid the problems associated with a patchwork of local government regulations and requests, state legislators in Sacramento and around the nation should make clear the roles of various levels of government and work to prevent undue local discrimination against HAVs.

Several states have already enacted legislation preempting local authorities from meddling with HAV deployment, including Illinois, Nevada, North Carolina, Tennessee and Texas. These red, blue and purple states recognized that the best way to promote automated driving system development – and the resulting safety and mobility benefits – while ensuring effective government oversight, is to reinforce the traditional roles of federal, state and local vehicle and traffic regulators.

Just as it would be senseless for every state to attempt to reproduce NHTSA’s vehicle safety and performance efforts, having California’s 4,435 local governments attempt to reproduce authorities rightly possessed by state regulators runs counter to the goal of efficient, effective government oversight. Innovators would be strangled in red tape and inexperienced local regulators would be overworked on matters outside their areas of expertise. This is a recipe for less meaningful oversight of HAV testing and deployment, not more.


Image credit: Olivier Le Moal

Leadership super PACs and the further centralization of power

The direct primary was one of the Progressive Era’s most consequential reforms. Diminishing the role of parties in the nominating process meant that campaigns became more candidate centered and presumably more interesting to voters. By increasing popular participation in electoral politics, reformers hoped that government would become more representational, and that candidates would serve the interests of their constituents, not their parties.

For candidates, taking control over their campaigns meant having to raise money and hire staff. Candidate “branding” became important as the parties relinquished control over congressional elections and media began to play an increasingly influential role in politics. Today, candidates preside over sprawling and complex campaign operations. The average cost of winning a House seat is almost $1.5 million, while a Senate seat runs just over $12 million. The ability and willingness to raise enormous amounts of money is practically a prerequisite for serving in Congress today.

As the role of parties in elections shifted over the course of the 20th century, party committees became service-oriented organizations; rather than handpick candidates and direct their campaigns, they worked to elect the candidates chosen by voters. National party organizations still play an important role in congressional elections, but most of their financial and on-the-ground support is reserved for competitive general election races (though they occasionally do insert themselves into primary races). Fundraising is their chief enterprise.

The alliance between party committees and candidates isn’t always comfortable (Roy Moore’s candidacy for the Senate caused major rifts in the Republican party, for example), but for the most part, committees work to get as many of their members elected as possible. Maintaining or gaining majority control of the chamber is the overriding goal.

Candidates take their seats in Congress not “owing” the party anything because by getting elected, they helped the party achieve its team-oriented goal. There’s no personal attachment or bond formed between candidate and party organization; both play their parts in the election, then move on.

But what if it were party leaders – rather than party organizations – footing the bill for candidate campaigns? Would this dynamic personalize the donor/benefactor relationship in ways that might extend beyond the campaign? The oversized role that congressional leadership super PACs are currently playing in congressional elections may provide us with an opportunity to find out.

The Supreme Court’s Citizens United decision in 2010 opened the campaign finance floodgates to super PACs, committees that can raise unlimited amounts of money and make unlimited independent expenditures in elections. The decision led many to predict the (further) demise of parties which are held to stricter fundraising standards. In short, why would big donors give limited amounts to party organizations when they could give unlimited amounts to super PACs?

Indeed, spending by congressional party organization committees increased only modestly between 2012 and 2016, particularly on the Republican side. The NRCC, for example, raised $162.8 million in 2012 and $170.6 million in 2016 – an increase of less than $8 million over four years. At the same time, spending by congressional leadership super PACs skyrocketed. In 2014, the four super PACs affiliated with the Democratic and Republican leaders of the House and Senate spent a combined total of $114 million; in 2016, these four PACs spent $232 million. Party committees, together with congressional leadership super PACs, outspent all non-party spenders combined by $29 million in 2014 and $132 million in 2016.

So much for the demise of the parties?

Spending by non-party super PACs in House races declined from 2014 to 2016. However, the opposite is true of the two super PACs affiliated with House leadership. Party spending, combined with spending by super PACs run by Paul Ryan and Nancy Pelosi, represented 88-percent of the independent spending in the 34 most competitive House races in 2016. Independent spending in these races exceeded candidate spending by a ratio of 1.31 to 1.  Pelosi’s super PAC spent approximately $44 million on these races and Ryan’s super PAC spent approximately $40 million. In 2014, these super PACs spent $25 million and $10 million, respectively.

It’s worth noting that prior to 2004, candidate spending was never surpassed by outside spending. In 2008, five races broke that norm and in 2012, outside spending topped candidate spending in 10 races. In 2016, candidates in 27 races were outspent by outside groups. Most of this spending can be attributed to parties and leaders.

Given this trajectory, what can we expect from leadership super PACs in 2018? Paul Ryan’s Congressional Leadership Fund (CLF) provides us with one example.

Heading into the 2018 midterm election, the CLF launched a highly sophisticated operation, opening field offices in 27 competitive districts. Corry Bliss, CLF’s executive director, said that the committee has “rejected the traditional model of super PACs” and is “doing things differently by operating a national, data-driven field program.” The committee has already raised almost $37 million and spent over $11 million in three special election races. Eight more field offices are scheduled to open this year as part of the committee’s “$100 million campaign.”

Decisions about investing in these races will be made with an eye toward candidate loyalty. “When we allocate resources this year, heavy preference will go toward those who supported the speaker and president’s legislative agenda,” according to Corry Bliss. That message was made clear last year when the CLF pulled its support for Rep. David Young (R-IA) after he opposed his party’s healthcare bill. The committee closed its field office in Young’s district and transferred staff elsewhere. Bliss said the CLF would not support a candidate who cannot support the president and House leadership.

For the parties, elections are a numbers game; win majority control and move on to the next election. But for party leaders, elections are about building a loyal base as much as they’re about winning. Having served as Speaker since 2015, Paul Ryan certainly understands the challenges of managing divisions within his party. By choosing to throw his significant financial and operational support behind candidates who will toe the leadership line, he sends a clear signal to vulnerable incumbents and first-time candidates alike: Support me and I’ll support you.

There is absolutely nothing surprising about this dynamic. Party leaders have long used their candidate campaign and leadership PAC committees to build support networks in the chamber. Leadership super PACs, however, represent a significant new development in the role that party leaders play in elections. Leaders can give candidates $2,700 from their campaign committees and $5,000 from their leadership PACs, per election. But they can spend unlimited amounts on candidate campaigns, via their super PACs. The $6.2 million Ryan’s super PAC spent getting Karen Handel (R-GA) elected last year, and the $3 million the committee has already spent trying to get Rick Saccone elected in Pennsylvania’s 18th district, is a lot more than the $5,000 his leadership PAC can spend on each candidate’s behalf.

By adding super PACs to their arsenals, party leaders are inserting themselves into candidate campaigns in ways that likely matter well beyond the campaign. Much has been written about the centralization of power in the House, mostly focusing on how leadership increasingly determines policy content and tightly controls floor debate and votes. In this environment, there are fewer entrepreneurial opportunities for rank-and-file members and that suits party leaders just fine. Better to elect and preside over a party of foot soldiers than renegades.

In the absence of legal intervention, unlimited independent spending will continue to dominate the campaign finance landscape. With majority control of both chambers at stake, the 2018 midterms are already shaping up to set new outside spending records, with parties and their leaders taking the lead. Given this dynamic, we should expect to see the ranks of party loyalists continue to swell as more experienced and independent minded members head for the doors.


WBAL Morning News with Bryan Nehman: Clark Packard on Trump’s Steel and Aluminum Tariffs

Clark Packard joins WBAL’s Morning News with Bryan Nehman to discuss the impact that the steel and aluminum tariffs proposed by President Trump would have on the economy.

Dr. Megan Reiss on Cyberlaw Podcast

Dr. Reiss was part of The Cyberlaw Podcast’s news roundup on March 5, 2018. She discussed the attribution problem with the cyberattack on the Olympics and the Crowdstrike’s new report on the blurred lines between state-sponsored cyberattacks and cybercrime.