It’s probably fair to say that there are more question marks swirling around the 2016 US presidential election than any race for The White House in recent memory.
Normally, Americans have a choice between two candidates, a Republican and a Democrat, who purport to hold vastly divergent views on everything from the economy to foreign policy to societal values. One is a “liberal” and one is a “conservative” and for a few short months towards the end of every election cycle, the electorate suspends disbelief and pretends as though who they vote for actually matters in the grand scheme of things.
Four years later little, if anything at all, will have changed and voters resign themselves to the sad reality that their faith has once again been sold down the river, that American politics is only a duopoly on the campaign trail, and that the only time the difference between Republicans and Democrats is evident to everyday Americans is when something important needs to get done and it is always at that exact moment that the partisan divide keeps Congress from doing its job.
The takeaway for most voters: inside the Beltway all politicians are the same. They do the bidding of vested interests, lobbyists, and whoever else has the money.
No one knows that better than Goldman Sachs, a firm which has its fingers (or “tentacles” as it were) in every political pie that matters.
The firm has given extensively to Hillary Clinton over the years and has been quite generous when it comes to offering the former First Lady and her husband six figure speaking engagements. Employees of the firm donated to the campaigns of Jeb Bush and Marco Rubio before they dropped out of the race while Ted Cruz’s wife Heidi actually used to work for the bank. Cruz has used (sometimes undisclosed) loans from the firm to finance his political career.
So if there’s anyone who should be able to field questions about the 2016 election, it’s Goldman. And there sure are a lot of questions. Below, find excerpts from a Q&A put together by Jan Hatzius and crew and note that while the bank still thinks their own bought and paid for Democratic frontrunner Hillary Clinton has an advantage over Trump in the national election, Goldman thinks the current head-to-head polls are giving her far too much credit.
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From Goldman
Will Trump win the nomination?
It appears to us to be the most likely outcome but far from guaranteed. To win the nomination, a candidate needs to win votes from a majority of the delegates to the convention. This is distinct from winning a majority of delegates in the individual contests in states and territories, since some delegates could vote for a different candidate than they have been pledged to support, as described in detail below. However, since nearly all of the 2,472 Republican delegates are at least nominally bound to a particular candidate based on the results of primary elections, caucuses, and conventions, the simplest path to the nomination is to win a majority of delegates prior to the convention.
Trump must win about 65% of the remaining pledged delegates. While this seems like a high bar, the delegate allocation methods used in the later contests make it attainable. More than 2/3 of the remaining delegates come from states that award delegates to the winner of the state popular vote or to the winner of the popular vote in each congressional district. To put this in perspective, during the competitive period of the 2008 and 2012 nomination contests, the top-placing candidate in each state won an average of 45% or so of the popular vote—not far from the share of votes Trump won in the March 15 contests—which translated into just over half the delegates awarded in proportional and “winner take more” states, but 85% and 100% of delegates in states that award delegates using winner-take-all by district or statewide.
While the remaining contests include a greater share of closed primaries (where Cruz has generally done better), the remaining schedule also has fewer caucuses and fewer Republican-leaning states, where his support has been stronger (Exhibit 4). So while there is a clear possibility that the dynamic could change again, for now it appears to be a three-way race in which Mr. Trump has the advantage.
What about a contested convention?
The arcane rules of the Republican nomination process consist of four general stages:
- The nomination contests themselves. Many primaries and caucuses held by various states award delegates based on the election results as if they were points on a scoreboard; i.e., they allocate delegates based on the share of votes cast in the state or in a congressional district (often both), rounding up or down to get to whole numbers of delegates awarded. But only about 15% of delegates are elected on the ballot as representing a given candidate. The rest are selected in some other way, creating the potential for slippage between the official primary/caucus results and the actual delegate allocation. In addition, three states (Colorado, North Dakota, and Wyoming) do not bind their delegates to support any particular candidate, nor do three territories (American Samoa, Guam, and the US Virgin Islands).
- The delegate selection process. Since many of the delegates awarded over the last six weeks do not yet represent actual individuals, the Republican party in each state must select delegates to travel to Cleveland in July to represent the state at the convention. The process differs by state, but typically involves conventions at the congressional district level and then again at the state level, usually several weeks after the primary or caucus. The goal for the campaigns will be to ensure that the delegates selected to represent them actually support their candidate and are not arbitrarily chosen members of the party who might shift support when given the opportunity. Some states like California allow candidates to file their own slate of delegates who will represent them if they win, but these states represent less than 10% of delegates by our estimates.
- Pre-convention strategy and rulemaking. Once the delegates for each state have been selected, the state parties must then choose two delegates per state to represent them on the various committees that will meet prior and during the convention. The “Rules Committee” will meet the week before the convention to decide the rules for the convention. Their starting point will be the current rules (discussed below), but the delegates to the committee are empowered to change the rules as long as they receive majority support from the delegates to the convention as a whole. A second committee deals with challenges to the eligibility of individual delegates, which could be an important tactic if the delegate count is close. Challenges must be filed by mid-June, or roughly one week after the last primaries in California and New Jersey.
- Votes on the convention floor. Delegates from most states are bound by state party rules or, in some cases, state law to support that candidate. A few—under 10%—of the delegates arrive to the convention unbound, or not formally associated with a particular candidate. During the Republican convention in July, all delegates will cast their vote for the party’s nominee, and nearly all delegates will be required to vote for the candidate to whom they were pledged. If a candidate wins the majority of delegates on that first vote, the process ends and he wins the nomination. If no candidate wins a majority on the first vote, a second round of voting is held. Around half of the delegates will represent states that bind their delegates to vote as instructed only on the first ballot, but allow them to switch their vote thereafter. Another 20% of delegates may switch after the second ballot, and nearly all delegates become unbound after the third vote. The remaining delegates may not switch until they have been released by their candidate, which could come at any point during the process.
So who would a contested convention favor?
It would probably give Sen. Cruz a better chance at the nomination than he currently has, but it seems less likely to result in the nomination of an “establishment” candidate and could still end in Mr. Trump's nomination.
Will Clinton win the nomination?
It seems very likely, but it might take a while. Secretary Clinton currently has 1,606 delegates to Senator Sanders’ 851 but, unlike the Republican nomination process, there are no winner-take-all states so, even with her large lead in “superdelegates,” she will need to win 38% of the delegates through June 7 to win the nomination.
Can Trump win the general election?
While Secretary Clinton appears to have an advantage in the general election, it would surprise us if the public (and markets) remained as confident of the election outcome as seems to be the case currently. Prediction markets imply around a 70% probability that the Democratic candidate will win the general election. In the longest-running prediction market still in operation, run by the University of Iowa, such an expectation reflects greater certainty about the general election outcome at this stage in the race than any other election going back to the start of the data in 1992.
While it seems likely that the race will look closer at some point over the next few months than it does today, the Democrats nevertheless have several advantages. Most important is the Electoral College itself, where Democrats start with roughly 250 electoral votes from states that have consistently voted Democratic in the last several elections and have been generally trending more Democratic over that time. This suggests that Democrats would need to win only one large swing state—Ohio (18 electoral votes) or Florida (29)—or a few smaller ones to win the election, whereas the Republican candidate will need to win nearly all of them.
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And before anyone suggests that Goldman hasn't contributed to Donald Trump's run at The White House, don't forget about Luke Thorburn, the Goldman financial advisor who was put on paid leave last month for selling hats inspired by the billionaire's "Make America Great Again" campaign slogan on a homemade website...