X-date: still on or around June 1
We miss slow news weeks. Too much to keep track of, but this week we focused on Congressional responses to recent bank failures, economic competition with China, and, of course, whether the federal government’s going to default on its debt.
X-date: still on or around June 1
Whatever happens, it won’t be a federal holiday. June 1 is still the date past which Secretary of the Treasury Janet Yellen may no longer be able to juggle the accounts in order to pay the government’s obligations. At a White House briefing yesterday, Vice President Kamala Harris and National Economic Council Director Lael Brainard said that a default on the debt could trigger a recession, raise interest rates for years, devalue retirement accounts, and put Social Security and Medicare at risk.
Principals and designees from the White House, House, and Senate have been meeting all week to hammer out a deal to raise the debt limit. Hopes rose yesterday afternoon when Speaker of the House Kevin McCarthy (R-CA) told reporters that he saw a path to agreement. This morning, House negotiator Garret Graves (R-LA) walked out of a meeting and said they’d decided to “press pause” on talks with the Biden administration and Congressional Democrats — but we hear that meetings will resume tonight, so fingers crossed.
Reforming bank supervision, regulation, and deposit insurance
Both the House and Senate held multiple hearings this week on the recent failures of Silicon Valley Bank (SVB), Signature Bank, and First Republic Bank, and on general oversight of the federal prudential regulators. Executives of the failed banks appeared before the Senate Banking Committee on Tuesday and two House Financial Services subcommittees on Wednesday, while federal and state regulators were on the House side on Tuesday and Wednesday, and before the Senate yesterday.
The bank executives told legislators that their banks’ failures were due to “extraordinary events” they could not have foreseen, which generated deposit runs the banks could not overcome. Contagion fueled the runs on Signature and First Republic after the closing of Silicon Valley Bank, the executives said, but social media rumors were also a major element of the massive deposit outflows that forced regulators to close SVB in the middle of a business day. No one had any good suggestions about how to short-circuit social media-driven deposit runs, and lawmakers noted that this is a risk that will only get worse with further adoption of AI-driven money management programs and real-time payments.
Consensus seemed to emerge among legislators on both sides of the Hill and both sides of the aisle that a system of tiered deposit insurance coverage, possibly providing unlimited coverage for commercial transaction accounts, could stabilize the banking system, shore up confidence, and ensure that the industry keeps mid-sized banks as well as giant banks and small community banks. The Federal Deposit Insurance Corporation’s report on options for deposit insurance reform, published last week, said that this kind of targeted coverage “has the greatest potential to meet many of the objectives of the deposit insurance system while mitigating many of the undesirable consequences of raising the limit more broadly.”
While Republican legislators castigated Federal Reserve supervisors, in particular, for supervisory failures in the months before SVB’s collapse, they also warned against using the failures as an excuse to pursue burdensome regulatory agendas. Vice Chair for Supervision Michael Barr reiterated that while the Federal Reserve does plan to proposal changes later this summer — and is still discussing how to implement the Basel III Endgame capital requirements with the FDIC and the Comptroller of the Currency — any changes will follow notice-and-comment procedures, allow substantial time for stakeholder comments, and be phased in over a period of years.
US must remove “golden blindfold” to China’s abuses
Pushing back against China is a rare area of bipartisan agreement in the House, and China’s economic aggression was the topic of two House hearings this week. Rep. Mike Gallagher (R-WI), Chairman of the House Select Committee on the Chinese Communist Party, warned against ignoring human rights abuses in pursuit of profits at a primetime hearing on Wednesday night. “American businesses shouldn’t be complicit . . . investment managers, especially US pension and retirement fund stewards, can’t ignore their fiduciary duties,” Gallagher said. Roger Robinson, former Chairman of the Congressional U.S.-China Economic and Security Review Commission, told the Select Committee that “well over 100 million Americans holding the stocks and bonds of U.S. sanctioned and other Chinese corporate bad actors.” Yesterday morning, a House Foreign Affairs Subcommittee hearing focused on China’s predatory trade practices, including intellectual property theft and economic coercion.
Confirmations, Nominations, Departures
The House of Representatives voted along party lines to refer a resolution expelling Rep. George Santos (R-NY) to the House Ethics Committee. The Ethics Committee established an Investigative Subcommittee in March to determine whether Rep. Santos engaged in unlawful activity, and said then that the Committee would make “no other public comment . . . except in accordance with Committee rules.”
The Week Ahead
The Senate is out next week, but will return to vote on a deal to raise the debt limit, if there is one.
May 23 at 10:00 a.m. House Committee on Financial Services holds a hearing on “FHFA Oversight: Protecting Homeowners and Taxpayers.”
May 23 at 10:30 a.m. House Energy & Commerce Subcommittee on Oversight & Investigations holds a hearing on “Growing the Domestic Energy Sector Supply Chain and Manufacturing Base: Are Federal Efforts Working?"
May 24 at 2:00 p.m. House Oversight and Investigations Subcommittee on Health Care and Financial Services holds a hearing on “A Failure of Supervision: Bank Failures and The San Francisco Federal Reserve.”
May 25 at 9:00 a.m. House Committee on Financial Services holds a hearing on “International Financial Institutions in an Era of Great Power Competition.”
The Ellis Insight - Jim Ellis on political news
PRESIDENT
Mike Pence: In a major step toward former Vice President Mike Pence entering the race to compete against the man he served as President, the Committed to America super PAC was filed this week with the Federal Election Commission. The committee will be the principal early vehicle to promote Mr. Pence’s impending presidential campaign. Whether or not the former VP can advance into the top tier is uncertain at the moment, but his entry into the race has been anticipated for months.
Impending Announcements: It is quite possible we will see three new presidential candidates come forward next week. The political tea leaves suggest that Florida Gov. Ron DeSantis will formally announce his long-anticipated national campaign. Two other Republicans may also jump in: South Carolina Sen. Tim Scott and Gov. Doug Burgum of North Dakota. (Update: Senator Tim Scott filed candidacy papers with the FEC this morning.)
SENATE
Hawaii: The Hawaii News Network is reporting that a Survey Monkey text poll is being conducted in the state pitting former US Congresswoman and presidential candidate Tulsi Gabbard against Sen. Mazie Hirono (D). Ms. Gabbard was quick to dispel the possibility of her running for the Senate, saying she is not associated with the poll and has “no plans to run for the Senate.” The 2024 election is rated as “Safe” for Sen. Hirono.
Maryland: Baltimore County Executive Johnny Olszewski (D) announced at a news event with Prince Georges County Executive Angela Alsobrooks (D) that he will not be a candidate for the US Senate next year and is endorsing Ms. Alsobrooks. At this point, Ms. Alsobrooks, US Rep. David Trone (D-Potomac), and Montgomery County Executive Will Jawando are the announced Democratic candidates for the open seat. Rep. Jamie Raskin (D-Takoma Park) is saying “it’s a toss-up” as to whether he will enter the Senate contest, but pledges to decide by the end of this month.
Sen. Ben Cardin (D) is not seeking a fourth term and will retire from politics at the end of the current Congress. This means the Democratic primary will decide his successor in a state where Republicans have little chance to win a statewide federal race. The Democratic contest already is becoming highly competitive and will continue for a year. Voters will make their decision in the May 14, 2024 nomination election.
Michigan: Resigning as the state’s Natural Resources Commissioner, former state Rep. Leslie Love (D) announced her candidacy for the US Senate, hoping to become Michigan's first African American Senator. Democratic leaders had been interested in recruiting actor Hill Harper into the race. Mr. Harper is a potential opponent that Ms. Love described as being “inexperienced in politics and government,” and further pointed out that he does not even live in Michigan.
State Board of Education President Pamela Pugh (D) has also filed a preliminary Senate committee. If all three African Americans become candidates the race the black vote will likely be split, thus favoring Congresswoman Elissa Slotkin (D-Lansing) who is commonly viewed as the race leader. The Michigan Senate seat will be open in 2024 because four-term incumbent Debbie Stabenow (D) is retiring.
Nevada: Disabled Afghan War veteran Sam Brown, who challenged former Attorney General Adam Laxalt for the 2022 Republican Senate nomination and raised over $4.3 million before losing the primary election, is apparently high on the National Republican Senatorial Committee’s (NRSC) recruit list, according to reports. Nevada, where Republicans won three of seven statewide races last November including unseating Democratic Gov. Steve Sisolak, is likely to be in the toss-up category for 2024. Incumbent Sen. Jacky Rosen (D) is seeking re-election for a second term.
New Jersey: New Jersey Democratic investor Kyle Casey became the third member of his party to challenge Sen. Bob Menendez (D), who again faces a federal investigation. Three Republicans have also declared. None of the candidates, however, appear strong enough to run a campaign with the strength to unseat the three-term Senate incumbent and 31-year congressional veteran when adding his seven terms served in the House.
Sen. Menendez will be safe in both the Democratic primary and the general election unless the federal investigation gains legs. The Senator was previously indicted in 2015, but the case fell apart and was dropped in 2018. If his legal trouble worsens, expect stronger candidates, likely from both parties, to come forth.
HOUSE
CA-41: Former federal prosecutor Will Rollins (D), who held veteran California Rep. Ken Calvert (R-Corona) to a 52-48% re-election victory last November, announced this week that he will return for a re-match. The move had been anticipated, but Mr. Rollins presence has not stopped other Democrats from entering the race. Already filed as candidates are San Jacinto City Councilman and pastor Brian Hawkins and Lake Elsinore City Councilman Tim Sheridan.
All contenders, including Rep. Calvert, will appear together on the 2023 all-party jungle primary ballot during the March 5th Super Tuesday vote. With a split Democratic vote, Rep. Calvert will easily place first, meaning the fight will be for second place, the only other position that guarantees advancement into the general election. Mr. Rollins clearly begins as the favorite among the Democrats.
MI-10: Carl Marlinga (D), the former judge and local prosecutor who held freshman Rep. John James (R-Farmington Hills) to a victory margin of less than one percentage point last year, announced that he will return for another run. Mr. Marlinga will have to navigate through a Democratic primary, however, since three other Democrats, former 9th District congressional nominee Brian Jaye, and two ex-state House nominees, Emily Busch and Diane Young, are already in the race.
NY-18: Retired NYPD Deputy Investigator Alison Esposito (R), who was Rep. Lee Zeldin’s 2022 running mate in the Governor’s race, said she is considering launching a bid against Rep. Pat Ryan (D-Gardiner) in the Hudson Valley’s 18th District. In 2022, Rep. Ryan won a tight 49.6 – 48.3% victory over then-Assemblyman Colin Schmitt (R), who received strong reviews as a candidate.
The 18th, which contains parts of Dutchess, Orange, and Ulster Counties, will be a seat the Republicans contest and it remains to be seen if Ms. Esposito, Mr. Schmitt, or another individual becomes the ultimate party nominee. At this point, there is no indication that Mr. Schmitt is preparing for another congressional run.
NY-22: In 2022, businessman Brandon Williams (R-Syracuse) continued the Republican tradition in this part of the Empire State of winning a congressional seat where the partisan lean favors their Democratic counterparts. Since 1980, GOP Reps. Williams, John Katko, James Walsh, and George Wortley together represented the Syracuse anchored district for all but six years.
It is clear Rep. Williams will be a major 2024 campaign target, but now a Democratic primary potentially looms upon the political horizon. Earlier, DeWitt Town Councilmember Sarah Klee Hood (D) declared her candidacy. This week, associate college professor and author Clem Harris (D) entered the race. Dr. Harris is also a former staff member to then-Gov. David Paterson (D). This is another of the key national 2024 House campaigns that will largely determine the next majority.
TX-15: In 2022, second-time congressional candidate Monica de la Cruz (R) defeated businesswoman Michelle Vallejo (D) by a relatively strong 53-45% victory margin in a district that the FiveThirtyEight data organization rated as EVEN, and Dave’s Redistricting App’s partisan lean calculation favored the Democrats, 51.2D – 47.1R. Ms. Vallejo, however, did not draw favorable reviews as a candidate, nor was her campaign particularly strong.
This, however, has not deterred her from running again. Ms. Vallejo announced her 2024 candidacy this week, but it wouldn’t be surprising to see Democratic leaders search for a different candidate. At this point, and despite the partisan lean and the region’s voter history, Rep. de la Cruz is favored for re-election in this 15th District that stretches from the area just south of Austin all the way to the Mexican border.
South Carolina: The US Supreme Court announced earlier in the week that the justices will hear the Alexander v. South Carolina State Conference of the NAACP case in the Fall term. Earlier, a three-judge panel declared that the state’s 1st District, the Charleston anchored seat that Rep. Nancy Mace (R) represents, is an unconstitutional racial gerrymander, and now the high court will hear arguments from both sides.
The move is interesting since the justices are currently preparing a ruling on the Alabama racial gerrymandering case that is thought to be the vehicle for a landmark ruling. SCOTUS hearing the South Carolina case makes the coming Alabama ruling even more curious.
GOVERNOT
Kentucky: Blue Grass State Attorney General Daniel Cameron, who former President Donald Trump endorsed last year, easily won the Republican gubernatorial nomination with 48% of the vote over 11 opponents. He will now face Gov. Andy Beshear who was renominated in the Democratic primary with 91% voter preference.
Polling suggested a much closer finish, and that former UN Ambassador Kelly Craft, who outspent Mr. Cameron by a 10:1 margin, would secure second place. She fell to third in the final vote, however, with just 17% support. Agriculture Commissioner Ryan Quarles, who began the race buried in the second tier, was the candidate who gained the most momentum against Mr. Cameron. He rose to second place recording 22 percent.
Curiously, on Election eve, even though the state’s three-day early voting period had closed, Florida Gov. Ron DeSantis issued an endorsement for Ms. Craft. Considering that polling was showing a downward trend for Ms. Craft, Gov. DeSantis still issued the late endorsement ostensibly to position himself opposite of Mr. Trump. Therefore, it’s difficult to see what he gained by coming in late to back a candidate who was likely to lose.
LOCALITIES
Colorado Springs: Yemi Mobolade, the Independent candidate who was the city’s Small Business Development Administrator and a native of Nigeria, easily won the Colorado Springs mayoral runoff to succeed term-limited Mayor John Suthers (R). Mr. Mobolade’s victory margin was 57-43% over former CO Secretary of State Wayne Williams (R). Mr. Mobolade is an interesting candidate in that he grew up in a socialist country but emphasized business, community and leadership development, entrepreneurship, and ministry in his successful mayoral campaign.
Jacksonville: In a victory for Democrats on Tuesday night, converting a mayor’s office that had resided in Republican hands, former local news anchor Donna Deegan scored a 52-48% victory over Chamber of Commerce CEO Daniel Davis (R). The media analysts tab the race as an upset since the Republicans held the Mayor’s office for the past eight years in the person of term-limited incumbent Lenny Curry, but Democrats considerably outnumber Republicans in voter registration within the city despite the latter party now having a 400,000+ person advantage statewide.