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Bankers Dance the Federalism Tango

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Federalism -- the division and sharing of power between state and national governments -- is the Constitution's signal invention, and its most baffling one. Since 1787, Americans have feuded bitterly over state's rights, and fought a bloody civil war over them. Earlier this month, the governor of Texas openly speculated that his state might wish to secede from the union.

A case argued before the Supreme Court yesterday vividly illustrates how federalism confounds our customary political line-drawing. In Cuomo v. Clearing House Association, New York Attorney General Andrew Cuomo wants to investigate whether banks extended high-interest loans to too many minority homeowners.

That critical question -- which is is intimately connected to the subprime mortgage meltdown that triggered so much economic pain around the world -- has been entirely obscured by a jurisdictional one: Does Cuomo have the power to investigate national banks?

Here's where federalism and politics make strange bedfellows.

  • Cuomo, a liberal Democrat, is trumpeting states' rights.
  • The Obama Administration, accused of creeping (or rampant) socialism by many conservatives, defended national power -- as had the Bush administration.
  • Then again, so did the Bush administration.
  • In the court of appeals, the banks (and the federal government) were supported by two judges appointed by Bill Clinton.
  • Cuomo, the aforesaid liberal Democrat, won only the vote of a Republican judge from Utica who was appointed by Ronald Reagan.

Got it? Banks have been playing this jurisdictional shell game for generations, seeking federal charters when that suited them and state licensing laws when those were more advantageous, and playing the two against each other.

Most of the time, it turns out, federalism is the ultimate lip-service doctrine. If state's rights get you to the outcome you want, then you support state's rights. If not, well, federal power's good, too. And it's not just self-interested economic actors like banks who dance this dance.

Take the late Justice William Brennan, the true architect of the liberal "rights" revolution of the Warren Court. A brilliant legal strategist, Brennan was central to the Supreme Court's vindication of federal rights against the states. But when the Court majority shifted against him, Brennan nimbly called in 1977 for state Supreme Courts to interpret their own state constitutions to expand citizens' rights.

Or the self-righteously conservative Bush administration, which trampled states' rights to vindicate its own political agenda concerning numerous environmental and safety question. In the tawdry 2005 fight over the fate of Terry Schiavo, the Florida woman on life support, Bush Republicans even stripped Florida's courts of jurisdiction over her case.

So what about federalism? Are the states the laboratories of government, to be nurtured in their independence? Or are they captives of narrow interests of small groups, to be controlled by a wise national power?

Where you stand depends on where you sit...each time the music stops.