This is interview #3 in JohnsonForAmerica.com’s “Important Voices” series, where we talk with key figures, such as elected officials, candidates, authors, commentators, and media personalities, about the issues of the day. A new interview is released every Monday and every Thursday, so check back often!
Our guest for today’s Important Voices interview is Vern McKinley. Vern McKinley, born in East Chicago, Indiana, advises governments on financial sector policy and legal issues. McKinley worked on the 1984 re-election campaign of President Ronald Reagan, and he graduated with honors from University of Illinois at Champaign-Urbana in 1985 with degrees in Economics and Finance. From 1985 to 1999, McKinley worked with the Board of Governors of the Federal Reserve, the FDIC, the Resolution Trust Corporation, and the Treasury Department’s Office of Thrift Supervision. In 1995, McKinley graduated with honors from the George Washington University School of Law. Since 1999, he has applied his expertise as a legal advisor and regulatory policy expert to work as an advisor to governments on financial sector issues in the U.S., China, Nigeria, Indonesia, Kazakhstan, Latvia, the Philippines, Yugoslavia, Kenya, Morocco, Sudan, Libya, Afghanistan, Armenia, Kosovo, and Tajikistan. McKinley has completed policy work for both the American Enterprise Institute and the Cato Institute and has served as an Alumni Council member of The Fund for American Studies. He was the Republican primary challenger to Congressman Frank Wolf in northern Virginia’s 10th congressional district in the 2008 elections. McKinley lives with his family in Ashburn, Virginia.
Josiah Schmidt: Thanks for agreeing to speak with us, Vern. How did you come to hold such a liberty-oriented philosophy?
Vern McKinley: Like most people, I developed an overall philosophy during my teens. Unlike most people, I have stayed consistent with that philosophy ever since. The first presidential election I really intensely studied was the 1980 election. My parents, who were hard-core, blue collar Democrats, supported Senator Kennedy. I had a brother a few years older than me who was a Reagan supporter and as we studied the campaign in school, Reagan’s positions just seemed to make a lot of sense to me. Kennedy was someone in my opinion who just wanted to spread around other people’s money. When I went to college, my brother got me interested in the ideas of Milton Friedman; I was involved in College Republicans; I spent a summer in Washington, DC working in the Senate and I worked on the Reagan campaign in 1984, developing my philosophy along the way. I think there were a lot of flaws in the follow-through of the Reagan Administration, but I think he was definitely the most liberty-minded President in my lifetime. I am hoping we can get someone as President in the coming years that is not only liberty-minded, but also does the necessary follow-through when he or she becomes President.
Josiah Schmidt: What are some of the most important lessons you’ve learned during your involvement in politics?
Vern McKinley: The political class will do everything they can to stay in power. I challenged the establishment in my campaign, a 28 year incumbent Congressman who was and remains a Big-Government Republican. I spoke at county Republican meetings and in many cases, the head of the party for the county would undermine what I had to say right after I said it. Other times, they would let the Congressman speak first in a series of 10 or so candidates and I would be given a slot two hours later after over half the people had left the meeting. Then there were the attacks on my character. It was relatively benign when I put up a website and the Congressman’s representatives contacted every organization I noted an affiliation with, whether it was Cato Institute, a think tank I have worked for or the Fund for American Studies, an educational charity I work with. Not sure what the point was, but I am pretty sure they were trying to find something negative about me. When they could not find anything, then they just started spreading vicious lies about my work experience, implying that I was enabling corrupt governments in my work advising governments. A state senator, who is now Attorney General of Virginia was involved in that. Then I received what I saw as a threatening phone call implying that I really needed to get out of the race. That was from the Attorney General of Virginia who is now Governor.
Josiah Schmidt: With your political experience, what is one thing you would advise other libertarian candidates to do differently?
Vern McKinley: The main thing is to not diverge from a consistent limited-government position. Candidates are bombarded with messages either from people working on the campaign to unsolicited comments that come in through a campaign website or otherwise. All of them have their favored issue and many want you to change from your limited-government position. That’s a slippery slope. I thought it was better to accept defeat than diverge from the principles I had spent 25 years thinking through and applying to my life experiences.
Josiah Schmidt: In 1997, you correctly predicted the Fannie and Freddie meltdown. How were you able to foresee this?
Vern McKinley: To me, as I learned about Fannie Mae and Freddie Mac as I put together a policy analysis for Cato Institute back in the mid 1990s, it just seemed so obvious to me, given my financial and legal background, that this was a cocktail of a number of different troublesome strands that would one day wreak havoc on our financial markets. In that Cato study, I called Fannie and Freddie “financial time bombs.” They were a mix of corporate welfare, enormous leverage, risky assets (the infancy of subprime mortgages back then), political interconnectedness, massive lobbying, and an off-budget process, which was like free money to politicians of both parties. As I detailed for Cato, it was getting worse, not better. I knew it was going to blow up someday. I was not sure when, but I knew when it happened it was going to cost tens of billions of dollars to clean up. I should point out there were others like Tom Stanton in the early 1990s and Peter Wallison around the same time as me that were saying similar things. I tried to document as much of what I could as to the evidence of how this was all coming together, but obviously not many people in Washington listened.
Josiah Schmidt: You are a well-known financial advisor who has advised many foreign governments. Do you have any interesting stories to share with us from your experiences?
Vern McKinley: In general, I think a lot of Americans think that people from other countries are not as entrepreneurial or not as capable as people in the US. Having spent nearly half of my time traveling abroad the past ten years, I would disagree and think the biggest challenge most people have living outside the US is that they are unfortunate enough to live in a country with an incompetent or corrupt government that prevents them from realizing their full potential. I complain all the time about how bad our government is, but the problems with the government in many developing countries are nearly insurmountable. As for interesting stories, one that comes to mind is from when I went to Afghanistan, where I have traveled about seven times the past few years. One of my Afghan colleagues who worked at the central bank used to leave his tie in his office drawer, and I asked him why he did that. His response was that if he left his house wearing a tie his, neighbors would know that he worked with the Americans. I never asked him whether this meant he would be merely ostracized by his neighbors or actually threatened more seriously, but to me that demonstrated how unpopular some of the actions of the US government have been the last eight years in occupying and nation-building as we have been.
Josiah Schmidt: What is wrong with the recent federal government bailouts?
Vern McKinley: I did another analysis for Cato last year on the whole series of bailouts and I am continuing to research that topic. Beyond being expensive, the bailouts are just very shortsighted. The problems banks have are an indication of imbalances that need to be righted and we are stopping those adjustments from properly taking place. I have traced the history since the 1930s of all the bailouts and the bailout programs just keep getting bigger and bigger. During the last crisis, just as in this crisis they said “we are done with bailouts,” but we just keep having them all over again, broader in scope and casting an enormous safety net for sophisticated investors that should be absorbing these losses instead of taxpayers. There has been no rhyme or reason to the whole series of bailouts as the Cato analysis details and the whole process has been lacking in transparency. As for the loss in confidence we suffered through, policymakers in late 2008 simply panicked, and that reached its peak when Bernanke, Paulson and Geithner had President Bush get on television in late September 2008 to scare everyone. The irrational reaction of Bernanke, Paulson and Geithner was what caused the panic more than any other factor. Now they somehow have taken the line that they saved us from another Depression. What a load of unsubstantiated lies and much of the media has unfortunately bought into that story hook, line and sinker.
Josiah Schmidt: Having worked with the Federal Reserve for nearly two decades, how important do you think it is that the Fed’s monetary policy be audited, and why?
Vern McKinley: I spent a few years early in my career at the Fed and have followed the Fed throughout the past decades. I think it is very clear that all of the Fed’s opaque range of activities have to be scrutinized, by the GAO, Congress and the public at large. The big argument Bernanke makes is that it will compromise the Fed’s independence, and a lot of economists, who incidentally are in the tank for the Fed (similar to how many economists in the mortgage market were in the tank for Fannie Mae and Freddie Mac) support that notion. The truth is, central banks have two types of independence: policy independence (or goal independence) which allows them to set the overall goals of monetary policy, such as interest rate targets or inflation targets, and instrument independence, which allows them to choose the particular means by which they implement that overall policy, such as open market operations, discount window lending, or reserve requirements. The mere fact of auditing these activities impacts neither of these components of independence.
Josiah Schmidt: A year ago, you brought up a Freedom of Information Act request against the FDIC for information on the bailouts. Any progress with that?
Vern McKinley: That is part of my research on the topic of bailouts, and brings up the whole issue of transparency and the opaqueness of the bailouts and the agencies implementing them. As part of the Cato piece, I tried to get the answer to a simple question: “What did the Fed and the FDIC save us from in undertaking the bailouts?” I filed Freedom of Information requests in late 2008 with the FDIC and the Fed trying to find out what adverse consequences would have flowed from allowing the various institutions to fail: Wachovia and Bear Stearns in particular, and now I am trying to get information on Citigroup and Bank of America. If you think about it, there has been a lot of talk about the costs of the bailouts, but very little focus on the benefit, which presumably is that we avoided adverse fallout from the failure of these institutions, and I am very skeptical of these dark scenarios the Fed, Treasury and FDIC have painted of what would have happened. I received no real information on the justifications, only heavily redacted meeting minutes and memos from the FDIC, which of course redacted the answers to my simple question, and absolutely nothing from the Fed. So I brought suit last July in Federal District Court against the FDIC and the Fed, and Judicial Watch is now representing me. We have made some progress on the FDIC front and we are waiting for the judge to rule on that component of the case, hopefully in the next month or so. We feel that there is a good chance of prevailing, which would give us access to the full documents. The Fed piece of the litigation has lagged behind a few months. The Obama Administration, which talked a good game about transparency during the campaign, intervened in the case through the Justice Department….on behalf of the Fed! So we will see how that process winds through the courts over the coming months.
Josiah Schmidt: As a financial and government policy expert, what is your opinion of Gary Johnson and his policy prescriptions?
Vern McKinley: I have followed Governor Johnson during his time holding office in New Mexico and after, and hoped that he would consider the next logical step of President, similar to what President Reagan did after two terms as California Governor. Governor Johnson has a consistent limited-government approach and on top of that he has a great deal of credibility as a chief executive, not only with his experience as a governor, but also running his own business. I voted for Dr. Paul in 1988 and also in the primary in Virginia in 2008, and although I agree with him on most of his policy positions, I think he lacks credibility as an executive and I think a lot of people that consider themselves liberty-minded agree with that assessment. I have a circle of people I communicate with on the various social networking sites and last summer we were making our way through the names of potential 2012 candidates, discussing who would be the best candidate to support in 2012. After going around for some time, one of the members of our group, who is a student who is wise beyond her years, just chimed in at one point: “Gary Johnson, y’all.” So at that point we all just agreed we should be supporting Governor Johnson in his efforts and hopefully those efforts will lead to a full-blown campaign either later this year or early next year.