“I scared the crap out of them!”: Alan Grayson details how to work with the GOP

Congressman Alan Grayson tells Salon how he handles the right, and how America has created "stealth socialism"

Topics: Alan Grayson, interview, Congress, House of Representatives, Lehman Brothers, Dodd-Frank law, U.S. Economy, Editor's Picks,

"I scared the crap out of them!": Alan Grayson details how to work with the GOPAlan Grayson (Credit: C-Span)

In Part 1 of my interview with Rep. Alan Grayson published on Monday, we talked about Syria and national security policy. In Part 2, we turn to domestic matters. Grayson is actually one of the only trained economists in Congress, graduating from Harvard with an economics degree.

We talked about whether Dodd-Frank stabilized the financial system, the role of the Federal Reserve in the economy, and his surprising view on the fears of a government shutdown. We also talked about his recent partnerships with House Republicans. Below is a transcript of our conversation.

With the five-year anniversary of the Lehman Brothers collapse upon us, everyone is talking about whether we remain vulnerable to another crisis. You were on the Financial Services Committee when Dodd-Frank passed in 2010. Has it worked to make the financial system safer, or has nothing much changed?

Yes, nothing has changed. The only thing that has changed is the passage of time. Sometimes time does not heal. We still have the problem of some institutions being too big to fail, and nothing has been done to make them smaller or less interconnected. Nothing has changed the fact that, because of the sense in the market that some institutions are too big to fail, the big get bigger and the small get smaller. The cost of capital is smaller for institutions perceived as government-backed, than for ones not as credit-worthy, with counter-party risk.

The one good thing that’s happened in the past five years, in the sense of making people hopeful that the economy might survive a collapse, is that the Federal Reserve’s unconventional monetary policy put us back on a low-level track toward growth. They showed that monetary policy in extremis can work to some degree.

How big is the Fed balance sheet, $3 trillion?

$3.5 trillion. We’ve had a government takeover of the bond market. Stealth socialism’s been created. Government simply ends up owning more and more and more. If government had taken over the steel industry, maybe it would have been more noticeable. They’ve taken over the financing of housing industry as well, with a desired result. The result is now, finally, particularly in areas that were hard-hit, like mine in Central Florida, housing is ticking up again. So the Fed did in essence create an economic baseline that has led to something along the lines of 50,000-100,000 jobs created a month, setting a foundation for recovery for the U.S. economy.

And then the question becomes, with the Fed meeting this week and considering tapering their purchases, how you unwind that balance sheet, how you get out.

Or whether you get out. Conceivably, we might be in a situation where the Fed has to buy $70 billion in assets in perpetuity. It’s puzzling why there’s been no market reaction to that. But it has had its apparent intended purpose. It leaves you scratching your head a bit about how it worked and why it worked. You would think more than tripling the balance sheet would have some effect on the value of money, but so far no. There’s been no effect on inflation; in fact, it appears to have prevented deflation, an economic spiral and rounds of bankruptcy.

But rather than set a floor, what can be done to spur faster growth outside of the Fed’s intervention?

My feeling is we need to take much more direct action against unemployment, raise living standards and working standards. I support raising the minimum wage, and I support Jan Schakowsky’s bill to put people directly back to work. If you run the numbers, the Fed’s job creation efforts are costing millions of dollars per job. That’s what happens when you try to do things in an indirect fashion. Rather than take things like senior services, pre-kindergarten, cleaning up national parks, things we need to be done that would benefit society, and put people on the payroll and pay them $10 an hour.

But to get back to your original question, if people thought the financial reform legislation we enacted was going to end this forever, those people are disappointed. The net effect is we created a council of wise men – why is it always men, by the way? – we created a council of wise men to oversee the system [the Financial Stability Oversight Council], and that council has basically not functioned for the past five years. We’ve tried to track down what the group has done, we write letters. Nothing.

You said earlier that we shouldn’t be discussing war with Syria when there are these major economic issues out there. One of them is the issue of House Republicans funding the government and avoiding a shutdown. What do you think will happen with that?

I know what’s going to happen. I’m pretty sure. Republicans are going to pass a bill with only Republican votes. It doesn’t matter what that bill is. They could legislate a ham and cheese sandwich. They’ll send it to the Senate. The Senate will amend it so that, and this is unfortunate in my view, so that it enforces sequester limits and carries over to the next fiscal year. That bill will correspond to House on the length of time, whether it’s a month, two months, whatever. They’ll enact an amendment. Which I’m against, but that’s the way it goes. And the House will vote on it around midnight on Sept. 30 and it will pass with mostly Democratic votes.

So you’re pretty sanguine about how it will work out.

I’m sanguine about it, the market’s sanguine about it. Compare the market now to the market two weeks before the last threat of a shutdown. Look at the VIX, the market measure of volatility. The market is convinced that we’ll continue to muddle through. And I think that’s correct. I’m more concerned about the debt limit. In this case, it doesn’t matter what Republicans do. They’re going to have to pass something in the next two weeks. I can’t imagine Boehner will refuse to put it on the floor. And while I don’t agree with enforcing the sequester limits, you look at that versus a shutdown, a large number of Democrats will vote for it.

But the debt limit, you think that’s more dicey?

The problem with the debt limit is that Republicans don’t have to vote on that. The Constitution is clear, an appropriations bill or a continuing resolution has to start in the House. Everyone in the House leadership is getting that hard stare from the public. You know, when are you going to do this? And Boehner doesn’t have a good answer. A revenue bill must start in the House. The House has to go first. With the debt ceiling, nobody has to go first. That means maybe nobody goes first.

So maybe the president mints a trillion-dollar coin.

Is it platinum, or titanium? I get my precious metals mixed up.

Last question, going back to Syria for a moment, do you think your work with House Republicans this year, passing more amendments than any member of Congress, created a level of trust that allowed you to cross the aisle and get support for your opposition to military action?

Well, every time I walk over across the aisle, they’re happy to see me. Not because we’re good friends, but because I offer an interesting perspective. They appreciate it. At the committee level, I picked two committees where I would not get into death battles. I didn’t want to go back to Financial Services to lose every single vote. That’s not how it works on Foreign Affairs and the Science and Technology Committee. So I  read the bills, I find ways to bridge partisan differences, and make our stuff better. The other side is not so bent and crazy that they don’t appreciate that.

You have to find shared interests. There is this error that the Village makes over and over again, if I can use that term. It’s to think that Republicans are going to vote for Democratic objectives, and vice-versa, because they like each other. This leads to things like the president golfing with John Boehner. It’s this idea that if we play patty-cake, that will make everything better, and it’s not the case. Liberals vote and conservatives vote for the most part on underlying principles. The creative work that leads to someone like me, a second-term congressman with no leadership role, no position chairing a committee or a subcommittee, what gives me power is that I can understand how they look at things, find ways to make things better, not by compromising and meeting somewhere in between, but in a way that actually respects them and honors them and finds a way to make it better.

That’s not the only way, of course. I’ll give an example, I got a 50 percent increase for bilingual HUD housing counseling. The way Congress works these days, you can imagine how hard it would be to get a 50 percent increase on a cure for cancer. This matters a lot in my district, where 20 percent don’t speak English, and another 20 percent are bilingual. And they need housing counseling, it’s an area where housing values dropped 50 percent. So how did I get that? I said to Republicans explicitly, you can watch it on C-SPAN. I said, “You claim you want to improve your image among Hispanics, put up or shut up. If you vote for this, it’s not much money, and you show you have a minimal concern for Hispanics; and if you vote against it, you don’t.” And they rolled their eyes, they said Grayson doesn’t understand, this would rob Peter to pay Paul. But when push came to shove, they accepted the amendment, they wouldn’t allow a roll call vote on it. They didn’t want to have their people vote against Spanish-language housing counseling. They didn’t do it because I made pals with them. I scared the crap out of them!

David Dayen

David Dayen is a contributing writer for Salon. Follow him on Twitter at @ddayen.

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