The Greecing of America.

10 Dec

Or, Greece as a role model.

My new (elected 2012) Representative to the House is one John Delaney.  He ran as a Democrat. (Snort.)  Sometimes he was referred to as a “progressive Democrat”, whatever the hell that means, by the media during the election.  To be fair, he won not because this part of Md. suddenly turned into raging liberals (before they gerry-mandered our district, I was in the most Republican district in the state), but because it seems everyone had had enough of old Roscoe Bartlett, who had been in office for ten terms and who had accrued more than a few embarrassing scandals on his tote sheet.  The Republicans gerry-mandered Bartlett out.  Delaney, my new guy, is the 6th wealthiest member of Congress – both chambers.  His net worth is between 47 and 231 million dollars.


Well, clearly the man is bona fide  – in the way we Americans measure such things.

I’m getting to know him through his e-mailed responses to me when I sign some petition that goes to his office.  For instance, I suggested to Delaney that I support diplomatic solutions to the Iran issue and would kinda like him to, as well.  Just letting him know what one of his constituents thinks.  Using diplomacy – as opposed to bombs and sanctions, which are generally not understood to be “diplomacy” as the word is commonly defined – with a foreign country that has not invaded or threatened another country in several hundred years is not a strange, freaky, or outlandish viewpoint, in my opinion.  And we surely don’t need to get mired down in another war of choice in the Middle East.

This crap is the answer I got from his office:

Dear [friend];

Thank you for contacting me about U.S. policy towards Iran. I appreciate hearing from you on this important matter.

Iran developing nuclear weapons is one of the most significant foreign policy threats facing our country. A nuclear Iran has the potential to destabilize the Middle East and threatens our allies in the region. To prevent Iran from obtaining a nuclear weapon, we must continue to impose tough economic sanctions and closely monitor the Central Bank of Iran, so we can prevent the Iranian government from funneling money to its weapons program. It is essential that the U.S. be willing to leave all options on the table.

I am committed to working with my colleagues in both the House and Senate to prevent Iran from obtaining nuclear capabilities.

I’m only surprised that the whole thing wasn’t written in all capital letters with numerous exclamation points tossed around and about; just to emphasize the Enormous Risks! that our Homeland! faces from the Rogue Nation! that is Iran! which threatens our Purity!, our very Democracy! and our Womenfolk! (not to mention Israel!) on a freaking daily basis!  Hey, there, Mr. Delaney, is anyone monitoring our banks, by the way?  You know, just to make sure we aren’t funneling money into weapons programs and illegal wars or disrupting the financial well-being of the entire globe?  Oh.  Never mind.

Then one day I got an unanticipated e-mail from Delaney.

21 Nov, 2013:

Dear Friend,

I write to you today to update you on my efforts to rebuild our nation’s infrastructure through the Partnership to Build America Act, H.R. 2084. This major bipartisan legislation will finance $750 billion in needed repairs to our nation’s crumbling infrastructure, at no cost to the taxpayer. This week, H.R. 2084 gained its 50th cosponsor in the House of Representatives, bringing us one step closer to starting critical work that will update our nation’s infrastructure and keep our economy competitive.

As you know, infrastructure plays a critical role in our country, connecting millions of people with their jobs, families and more. My bill would help to upgrade our country’s aging infrastructure by creating a $50 billion American Infrastructure Fund (AIF), leveraged to $750 billion, through the sale of bonds offering a one percent interest rate. Bonds sold to capitalize the AIF would not be guaranteed by the government, ensuring that the fund does not put taxpayers at risk.

Since its introduction, H.R. 2084 has garnered substantial backing from Members of Congress on both sides of the aisle. This week, supporters of infrastructure development won a major victory when my bill received its 50th cosponsor in the House of Representatives, with 25 Republican and 25 Democratic backers. While this progress is encouraging, our focus has now shifted to the introduction of a Senate companion bill that will continue to build on the momentum we have seen in this Congress.

You sent me to Washington to break the partisan gridlock and rebuild our economy, and that spirit has motivated this legislation. As the 113th Congress moves forward, I will continue to support smart, bipartisan efforts to put our economy back on track.

Gosh, bipartisan support and smart and all.  Except that it sounds a bit like the private/public bond deals with the big banks that have been getting so many states and counties in trouble all around the US.  Aren’t some of these states/counties having to renege on their public workers’ pension funds and the like in order to pay back these bond deals when they head south?  And don’t some of these private/public deals result in higher user costs to the public?  (Think of the parking meter deal in Chicago, for example.)  Looking into it further, I saw that it was exactly this sort of thing, with some extra juicy goodness thrown in to entice the private entities.  I’ll get to that in a minute.

This whole idea of the American Infrastructure Fund has multiple layers of corporate and financial sector incentives that don’t square readily with the public interest.  It will create projects, or replace or repair existing projects, with potentially privatized or partially privatized projects requiring user fees to service the debt, with the projects themselves serving as collateral.  The local states or counties act as the governmental sponsors (the “public” part of this deal) rather than the federal government for any such projects; they are on the hook as the ultimate borrower/guarantor.  Now how Delaney sees this as “ensuring that the fund does not put taxpayers at risk” – which he mentions twice so as to really, really reassure us that we aren’t just the patsies in this whole fucked-up carnival game – when most of us have to pay taxes to our states and so would see our local taxes go up should the deals not work out so well, might have an interesting answer should one bother to ask it of him.  No-one has yet.

Here is how his idea works.  A new public/private “bank” type entity, the American Investment Fund (AIF), is set up with $50 billion of private capital and given 15:1 federal fractional reserve (leverage) authority (allowing up to $750 billion in project fundings) for the purpose of making loans to counties or states for county- or state-sponsored infrastructure projects.  The jurisdictions may elect to include private partners in those projects, but AIF is restricted from making a loan on any project lacking state or county sponsorship.

Corporations are incented to provide the initial $50 billion in a number of ways: 1) a nominal interest rate of 1% paid on their investment into the fund (their investment is actually a 50-year loan to the fund, which is often referred to or stated in other terms such as “buying a bond” in the fund);   2) a likely share in the profits and ownership of AIF, which, to be fair, may be minimal because: i) the charter is for AIF to make low interest rate loans; ii) AIF is a public/private entity, though I haven’t seen that expanded on so I’m not sure how (or how much) public ownership there will be in AIF  – and its Board, significantly, is set up to be private sector majority; iii) AIF may even be structured as a non-profit though I’m not sure about that; but, 3) by far the most important incentive and corporate driver is that there is to be a multiplier, set by the auction of the AIF bonds themselves, on the number of dollars that the corporations are allowed to repatriate, tax-free, back into the US, for each dollar they invest in AIF.

Delaney estimates the multiplier will auction out at around $4 of tax-free repatriation for each $1 invested in AIF, which is plenty rich enough already. His math is based on two layers of suspect assumptions, however, and no allowance at all is made for corporate malfeasance (collusion) to pervert the auction process (as is the normal standard in oil and gas lease auctions, etc.), so God only knows how high the tax-free repatriation multiplier will actually be.

Obviously, whatever the final numbers are, the federal government is giving up a lot of potential tax revenue to create this fund, and the actual effective return to the corporate investors will, in any scenario, be quite, shall we say, substantial.

To get comfortable with any of this, you have to buy off on the notion that, absent such vehicles as AIF, they (the corporations) were never going to repatriate those dollars at all. And once you believe that, you must decide that neither the US, the states, nor the counties have the capacity to build or maintain infrastructure without private assistance and/or that private ownership of public use assets is actually desirable.

This bill appears to me to be a way to accomplish both corporate tax avoidance and privatization while conducting infrastructure improvements that would be accomplished more readily and cheaply by the governmental structures already in place. For example, if the US government were to simply fund AIF (or the projects themselves) directly, preferably by: a) generating the money by actually taxing the repatriation of corporate profits; b) generating the money by actually taxing corporations at all, as most of the big corporations currently pay an actual tax rate of zero or less on corporate profits; c) generate the money by repealing the Federal Reserve Act of 1913 and then printing the money; d) taking the money from the Pentagon or the CIA or Homeland Security or NSA; or e) generating the money by the usual dumb-shit method of selling treasuries, we would, even in the worst case analysis, be funding those projects at normal Treasury rates, with no user fees required (unless local jurisdictions wanted to create new revenue sources, which we’d hope not because all such consumption taxes are super regressive), and without the odious, sovereignty-destroying, potential privatization of public-use infrastructure assets.  And why would these civic-minded entities be at all inclined to take on projects that serve the public benefit (think libraries, schools, bridges) rather than tollroads, bioweapons labs, new spy agency headquarters, and oil pipelines?

Since Goldman, Sachs, Wells Fargo, and JPMorgan are the experts which will get to run the whole shebang, and along with Halliburton, Bechtel, and Lockheed, are the ones with global profits to repatriate at the attractive tax rate of zero, fully tax-free, and they will collectively get all the no-bid infrastructure construction jobs, and they may each or all elect to participate in the initial public/private ownership of those assets, and will receive the interest paid by the jurisdictions on the AIF loans, and will, after jurisdictional default, then own, via their ownership of AIF, all of those assets plus the deficiency still owed by the jurisdiction, what’s not to like?

By my count, that’s a win-win-win-win-win-win-win!  Shit, Delaney is underselling this booger.

Following hard on the heels of this email from him, I saw that Delaney had an opinion piece published in the Washington Post.

21 Nov, 2013

John Delaney, a Democrat, represents Maryland’s 6th District in the U.S. House.

Washington has gotten so used to political theater that many here have lost the ability to spot real chances to do the right thing. The budget conference is an opportunity for Congress to craft a bipartisan compromise that serves the common good. Despite low expectations, the conference should be taken seriously.

The facts before the conferees are clear: Millions of Americans are out of work, growth remains stagnant, our long-term fiscal trajectory is unsustainable and the American people have said, loudly, that Washington is broken. Policy and political needs are aligned: Washington and the country desperately need a bipartisan, pro-growth compromise.

The conferees ought to consider a bipartisan solution that would create jobs in the short term, improve long-term economic growth and lower barriers for private-sector investment. The Partnership to Build America Act (H.R. 2084) is such a solution. The bill has 25 Republican and 25 Democratic co-sponsors, which may make it the most significant piece of unfinished bipartisan economic-oriented legislation in the House.[…]

My bill would create an American Infrastructure Fund (AIF), a large-scale financing capability that could act like a bond insurer or bank for state and local governments to build transportation, energy, water, communication and educational infrastructure. The fund would be capitalized with $50 billion that could be leveraged 15 to 1 to create a $750 billion infrastructure financing capability. Over 50 years, the AIF could finance $2 trillion worth of infrastructure and create more than 3 million jobs. [Teri’s note: Okay, the whole thing is neoliberal privatization, but seriously?  3 million jobs over 50 years? That’s your hard estimate?  We’ve already lost more jobs than that in just the past 5 years that all need to be replaced, not to mention the number of people who will need jobs over the next 50 freaking years.]

The $50 billion of capital would be funded not by government but by private companies that purchase 50-year bonds at 1 percent interest that are not government-guaranteed. No taxpayer money would support the American Infrastructure Fund. As an incentive to purchase these below-market bonds, buyers would be allowed to repatriate a certain amount of overseas earnings tax-free. The specific ratio would be established by auction, which would encourage interested companies to bid against one another, guaranteeing a fair deal for the government. The winners of the auction would be the companies that bid the lowest exchange ratio. I expect the winning ratio to be in the neighborhood of 4 to 1, based on what companies would be willing to pay as an effective tax. This means that if Company X purchases $1 billion in infrastructure bonds, it would be able to bring back $4 billion in overseas earnings tax-free. If the bonds are worth 20 cents on the dollar to the company, then the cost to Company X is the equivalent of a 13 percent tax.

This would help private and public sectors. Almost $2 trillion of corporate cash is sitting overseas. [Teri’s note: given that this is probably an underestimate of the cash sitting overseas, why don’t you slackers in Congress just demand these companies pay their fucking taxes instead of allowing such outrageous tax-avoidance scams in the first place?] Many large companies would like to bring home some of this money and reinvest it. By tying that repatriation to infrastructure, we guarantee that jobs would be created. [Teri’s note: I have to seriously question the premise that “many large companies” would “like to bring the money home”.  If they wanted to, they would have already.  It is patently obvious by this late date that they have abandoned the US.] […]

If U.S. ports can’t meet the demands of global commerce, jobs will leave our shores. If U.S. schools fall apart, American students will fall further behind. And if U.S. roads remain in disrepair, commutes will grow longer. [Teri’s note: Done, done and done.]  Infrastructure is a good investment; for every $1 spent on infrastructure, the economy receives $1.92 in benefit.

Pro-growth economic policy helps address our national debt in a politically feasible manner. Under current trajectories, we will face extremely tough choices after 2020, when interest on the debt and unreformed entitlement programs will threaten to crowd out our ability to pay for anything else. [Teri’s note: I particularly like the jab at Social Security and Medicare here.  Spoken like a true New Neolib Democrat.]  Economic growth, coupled with additional reforms, would lead to fiscal stability and ensure that the next generation has a chance to live the American dream. […]

Both parties have long called for a budget conference. Now that we have one, we should seize the opportunity to strengthen the economy. Congress has staged enough tragedies this year. Let’s come together and give the American people an ending worthy of our audience. [Teri’s note: I am not certain to which he refers here – the end of the Congressional year or the end of America.]

This opinion piece can be challenged on nearly every front, including the desirability of “lower[ing] barriers for private-sector investment” when that really means “lowering barriers for private sector ownership of public assets”, or the desirability of allowing corporations to invest in and own actual hard assets in lieu of them paying taxes to the government so the government (i.e., the people) can invest in and own the actual hard assets.

Even if we were to accept as a given that the total combined capital equipment and materials costs, e.g., cement, steel, technology, project management, etc., for the infrastructure projects are held to a ridiculous estimate of zero dollars ($0.00), which seems to be what Delaney is suggesting, even though, of course, infrastructure projects are by their nature quite capital intensive, his ambitiously calculated $2 trillion in projects over 50 years can produce 3 million jobs only by paying an un-liveable $11,000 per employee.  So either it creates 3 million permanent – but way below poverty-level jobs – or it creates a much smaller number of part-time or temporary jobs.

For example, someone who worked only once during the entire 50 years, for only a total of 8 months during calendar year 2027 when he was employed to help build the Keystone Pipeline Annex Cul de Sac Coffee Klatch & Homeland Dronewar Heliport (the KPACdSCKHDH) in Bismarck, North Dakota, or one of the KPACdSCKHDH’s built in Oklahoma, Texas, South Dakota, Minnesota, Iowa, Nebraska, Kansas, Louisiana, or Montana (because all those KPACdSCKHDH projects will definitely qualify as necessary infrastructure), will be counted among the 3 million jobs created, even though it might appear to the casual observer that he, more accurately, has been basically wholly unemployed.  (Hope he’s careful with the money he made.)  Do you think perhaps the corporate investors will hire him to serve coffee or maintain the heliport?  Oh, wait.  Robots do those tasks now.  The robots we got for free with all the other free capital materials and equipment we used while putting Delaney’s whole entire budget toward creating those 3 million jobs.

I was interested, after doing my research for this article, to see that the noted economist, Dr. Michael Hudson, had already addressed this private/public infrastructure bank concept way back in July; apparently Obama brought up the idea in a speech he gave at that time.   And I missed it – shoot dang.  I guess Obama gave this particular assignment to Delaney.  (“Hey, you!  New guy!   You been here long enough to screw over any Americans yet?  No?  Okay then, I’m sending my friends Jamie and Lloyd over to your office at lunch to help you write some ‘legislation’, if you get my drift.”)

Dr. Hudson sees it the same way I do, but he is a lot smarter than I am, so I’ll post some excerpts of his article to close with:

25 July, 2013

President Obama chose Knox College in Galesburg, Illinois (originally founded by anti-slavery activists in the 1830s) to float the economic program he has been working out with Wall Street investment bankers. His aim is to wrap this program in a democratic rhetoric. The speech’s actual content boils down to: “I’m doing fine and housing prices are recovering. The way to heal the economy faster is to make a Public-Private Partnership (with Wall Street) to finance new infrastructure investment. The government will guarantee a return – and if there’s any loss, we (you taxpayers) will bear it.” His political genius was not to sugar-coat the shady parts of his proposals. […]

The question is, how will infrastructure be financed. The danger that is looming is a giveaway to high finance, such as we have seen in Chicago, where Goldman Sachs and other hedge funds bought the right to install tollbooths on Chicago’s sidewalks with parking meters to squeeze out revenue at the cost of raising the price of driving and transportation in the city.

Most great fortunes in history have been carved out of the public domain. That was the case with America’s colonial land grants, and the railroad land grants after the Civil War. The great question facing Europe as well as America today is whether infrastructure will be provided at a low price – which can best be achieved by public investment – or at a high price as rent-extracting owners turn roads into toll roads, bridges into toll bridges, and so on throughout the economy. This is the looming Wall Street plan, using today’s downturn as an opportunity to cloak a vast new monopoly grab as a “solution” to the economic problem rather than looming as a new threat to price American labor and industry out of global markets.

The same thing is happening in Greece and other Eurozone countries obliged to pay bondholders by selling off infrastructure. In today’s world, privatization means financialization – funding the new construction with debt-financing, building interest and dividend charges into the price of services – and making this revenue tax-free as a result of the tax deductibility of interest. […]

This is essentially what the President proposes to do with mortgages that are still underwater. “I’ve asked Congress to pass a good, bipartisan idea – one that was championed by Mitt Romney’s economic advisor – to give every homeowner the chance to refinance their mortgage and save thousands of dollars a year.”  Under this plan the government will absorb the loss – the writedown – that otherwise would be borne by the banks and other mortgage holders. Taxpayers will foot the bill to pay Wall Street. This is the basic model for Obama’s infrastructure plan to be unveiled in the next few weeks. […]

The basic script is a fairy tale that balancing the budget in the face of the $13 trillion in Wall Street bailouts requires cutting back spending elsewhere in the economy. The Federal Reserve and Treasury were able to create this money for the banks, but pretend to be unable to do the same for the projected $1 trillion in Social Security deficits that may or may not materialize a generation from now. New wars in Syria and elsewhere can be funded by money creation, but not social spending programs – to say nothing of financing public infrastructure costs with public money creation rather than by recourse to Wall Street. This is the great policy asymmetry of the Obama Administration’s plans to use the economic crisis as an opportunity to cut and ultimately privatize Social Security as the capstone of a financialized Public-Private Partnership.

Here’s the problem that President Obama did not address yesterday: Today’s debt deflation and economic shrinkage are pushing federal, state and local budgets into deficit. This is forcing public spending to be cut back proportionally. That cutting will push state, local and federal budgets even further into deficit. This is why we are hearing calls to start selling off public infrastructure – to buyers who will become new customers for Wall Street investment banks.

It is the same phenomenon we are seeing in Europe. The newest economic prize is the right to buy rent-extraction rights to turn public roads into toll roads and similar rentier tollbooth installations. All this increases the cost of living and doing business, making the economy high-cost even as it is being impoverished.

That is not a solution. It bears out the classic principle that the solution to every problem tends to create new, even larger problems. Often these are unforeseen. But today’s problems in the making are all too foreseeable. What is needed is to keep translating the President’s speeches into their subtext.

Further reading:

Matt Taibbi on bond-rigging scams:

“[…]  The banks [GE, JP Morgan Chase, BoA, UBS, etc.] achieved this gigantic rip-off by secretly colluding to rig the public bids on municipal bonds, a business worth $3.7 trillion. […] the banks systematically stole […] from virtually every state, district and territory in the United States.[…]” 

Taibbi’s most excellent 2010 article on the bond deals in Jefferson Co., Ala., “Looting Main Street: How the nation’s biggest banks are ripping off American cities with the same predatory deals that brought down Greece”:

Taibbi, 2011, in a follow-up on Jefferson County, Ala:

“The good times just keep coming for Jefferson County, Alabama […] the city was roped into a series of deadly swap deals by a number of banks, most notably JP Morgan Chase, that left the county billions of dollars in debt. […]”

Les Leopold on Greece:

Dr. Michael Hudson on Greece; this is one of the best articles on the general topic of the global neoliberal cramdown ever written.  Dr. Hudson has presented a clear and compelling synopsis, readily decipherable, and familiar enough as a description of what is happening right now in the United States.  “Replacing Economic Democracy with Financial Oligarchy”:

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Posted by on December 10, 2013 in Congress, corporatocracy, economy, Wall St and banks


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