WE WOULD say that it’s conventional wisdom that Washington is paralyzed by partisan conflict — but that term would not adequately express how deeply this pessimistic view has embedded itself in the political culture. Like many widely held beliefs, “Washington is broken” has a basis in reality, and then some. Only a truly blithe optimist would deny that obstacles to legislative compromise are formidable, or that they will persist no matter who wins Tuesday’s elections.
Also like many widely held beliefs, however, the “hopeless gridlock” meme has gotten a bit overdone. Beneath the conflictual surface, there are a surprising number of policy areas in which bipartisan agreement is not only imaginable but incipient, and where the two parties could produce results in the next Congress.
We have in mind work that Republicans and Democrats, mostly but not exclusively in the Senate, have done on issues that may not attract the most attention but matter a lot to people’s lives: shoring up the postal system, for example, or pushing through a sustainable transportation bill instead of the patched-together measure that currently governs federally assisted highway and subway construction. As we hope to show in this and future editorials, the building blocks of incremental but meaningful legislative progress are in place and might finally be cemented after voters have had their say. This pragmatic agenda may be achievable even if, as expected, President Obama still finds himself confronted by a Republican House, and no matter which party controls the Senate.
To be sure, on the bloodiest partisan battlefields — health care, climate change and the like — green shoots of compromise are difficult to discern. If Mr. Obama acts too precipitously on his own to bypass Congress on immigration, it could have damaging spillover effects to other issues. Conversely, the two parties find it all too easy to join in popular but irresponsible causes, such as blocking even the most modest of trims to military pensions . It’s still possible, alas, to assemble majorities on behalf of unpaid-for spending increases or tax cuts — including, perhaps, the annual grab-bag of business breaks known as “tax extenders,” which may come up in a lame-duck session.
Still, consider what already has happened in the complex but vital area of housing finance reform. Permanently replacing the once-bankrupt, now quasi-nationalized Fannie Mae and Freddie Mac is the great unfinished task of post-crisis financial repair. If achieved, a new system could supply home buyers, home builders and home lenders with something they all badly need: certainty. Before campaign 2014 began in earnest, Senate banking committee Chairman Tim Johnson (D-S.D.) and ranking member Mike Crapo (R-Idaho) moved a reform bill through their panel, on a 13-to-9 vote that included six Democrats and seven Republicans in the majority. The Obama administration has also signaled support for the concept, which was first developed by Republican Bob Corker (Tenn.) and Democrat Mark Warner (Va.).
The Johnson-Crapo bill does not remove the federal government from the mortgage securitization business entirely, but does the next best thing by eliminating the design flaw of the old Fannie-Freddie duopoly: namely, an implicit taxpayer guarantee of two non-transparent entities that were both highly politicized and driven by the profit motive. Johnson-Crapo would instead create a single agency to sell an explicit federal guarantee for private mortgage-backed securities whose issuers are willing not only to pay for that guarantee but also put some of their own capital at risk. The version that passed the banking committee included “qualified mortgage” standards that rule out “no-doc” loans and the like — though it would also make mortgages with down payments as low as 3.5 percent eligible for government-backed securitization.
The proposal has the same Achilles’ heel as all federal insurance programs: that interest-group lobbyists would pressure the new agency to undercharge for the federal guarantee. A poorly priced guarantee fee could distort capital allocation no less than Fannie and Freddie did. Yet this hazard, too, could be mitigated. Rep. John Delaney (D-Md.), a former financier, has suggested letting private-sector entities bid on the security-guarantee business as well, assuming a share of the government’s risk in return for a share of the profits. These private-sector bids would facilitate more market-based fee-setting — economists call this “price discovery” — thus offsetting political pressures.
Senate Majority Leader Harry Reid (Nev.) never brought the Johnson-Crapo bill to the floor, partly because of opposition from liberals in the upper house who said it included too little aid for low-income housing — and partly because it would have been dead on arrival in the House due to opposition from House Republicans who said it included too much aid for low-income housing. That divide should be bridgeable, though, whoever controls the Senate. If Democrats are still in charge, they will no longer face the reelection pressures in red states that made Mr. Reid so averse to holding controversial floor votes. If Republicans have the majority, they should be better positioned to engage the House.
Though the current House Financial Services Committee chairman, Jeb Hensarling (R-Tex.), has offered his own more purely free-market bill, he has also voiced some sympathy for Mr. Delaney’s proposed middle path. As for the White House, it is already on record in support of something like Johnson-Crapo; its passage would help Mr. Obama keep a legacy-burnishing promise. By no means is this bipartisan deal a flawless one. It just might be doable, though.
This is the first in an occasional series of editorials.