In Chicago politics, there’s an old term for the publicly-subsidized pay-offs meted out to the corruptocrats’ friends and special interests: Boodle.
In the age of Obama, “reform” is all about the boodle. So it was with the stimulus. And the massive national service expansion. And the health care bill. And so it is with the financial “reform” bill set for a Senate vote at around 5:30pm Eastern today. In front of the cameras, the Democrats will lambaste the greedy, Wall Street money. Behind the scenes, they’re pocketing Wall Street campaign donations and working out deals.
First, the latest from Capitol Hill:
Senators will face a crucial test vote Monday that could clear the way for debate on far-reaching legislation to overhaul the nation’s financial regulatory system — or end in a partisan standoff — as Wall Street once again takes center stage on Capitol Hill. Elsewhere, lawmakers will be preparing to condemn the alleged sins of Wall Street’s past and also wrestling over how to prevent such excesses in the future. Top executives from Goldman Sachs, beset by charges that the bank misled its clients by selling them mortgage investments secretly designed to fail, will face questions Tuesday about how the firm profited from betting against the U.S. housing market. Senate Republicans said Sunday they plan to block efforts to move forward with an overhaul bill unless Democrats alter central elements of the legislation. Meanwhile, Democrats and Obama administration officials spent much of the day finalizing strict new rules to rein in the huge derivatives trade, including measures that could threaten profits at some of the biggest banks.
Look beyond the superficial characterizations of the bill. There’s a garden of carrots to soften the blow of the sticks.
National Review has a good rundown of all the favors to Wall Street embedded in the legislation, including front-door bailouts, backdoor bailouts, and Big Labor goodies.
You might have heard about the new $50 billion fund that would be used to wind down large financial firms that became insolvent. The fund would come from assessments on Wall Street banks, based on the principle that these “too big to fail” institutions should pre-fund their own bailouts. But you probably didn’t know that these assessments would count as tax-deductible business expenses, meaning that for every dollar the banks would pay into the fund, 35 cents would come out of the Treasury.
This provision is Senate Banking Committee chairman Chris Dodd’s financial-reform bill in a nutshell: a hodge-podge of new restrictions on Wall Street offset by a hearty dose of sweeteners to keep financial-industry cash flowing to Democrats. For every measure that would cut into Wall Street’s profits, another would subsidize its operations. New regulations governing derivatives would cut into the fees investment banks could charge for structuring these customized products. But the bailout authority awarded to the FDIC and the Federal Reserve would allow the banks to borrow at reduced rates, with their creditors secure in the knowledge that the government would step in if the market tanked.
Barack Obama’s Big Lie — that taxpayers are not funding this fund — is refuted by the CBO (via Morning Bell):
Before President Obama continues to go around accusing others of lacking legitimacy, he should read the official cost estimate of the financial regulation bill released by the Congressional Budget Office last Thursday. Assessing the budgetary impact of the $50 billion that “systemically important financial firms” would have to pay in assessments to pay for the bill’s “Orderly Resolution Fund,” the CBO writes:
The total amount collected from assessments is estimated to be about $58 billion through 2020. But such assessments would become an additional business expense for companies required to pay them. Those additional expenses would result in decreases in taxable income somewhere in the economy, which would produce a loss of government revenue from income and payroll taxes that would partially offset the revenue collected from the assessment itself.
In other words, these financial firms have to get that $58 billion dollars from somewhere, and that somewhere is you. Now the Obama administration may argue that they actually oppose the creation of the resolution fund. But American taxpayers should be even more frightened when they find out why the Obama administration opposes it. The New York Times reports: “The Obama administration does not support the $50 billion fund, partly out of concern that more money may be needed if one or more big financial firms ever collapse and that creating a fund could make it difficult to authorize more money.”
James Gattuso at Heritage has much more in an analysis of the 14 fatal flaws in the Dodd plan. A few choice morsels:
* Creates a protected class of “too big to fail” firms. Section 113 of the bill establishes a “Financial Stability Oversight Council,” charged with identifying firms that would “pose a threat to the financial security of the United States if they encounter “material financial distress.” These firms would be subject to enhanced regulation. However, such a designation would also signal to the marketplace that these firms are too important to be allowed to fail and, perversely, allow them to take on undue risk. As American Enterprise Institute scholar Peter Wallison wrote, “Designating large non-bank financial companies as too big to fail will be like creating Fannies and Freddies in every area of the economy.”
*Provides for seizure of private property without meaningful judicial review. The bill, in Section 203(b), authorizes the Secretary of the Treasury to order the seizure of any financial firm that he finds is “in danger of default” and whose failure would have “serious adverse effects on financial stability.” This determination is subject to review in the courts only on a “substantial evidence” standard of review, meaning that the seizure must be upheld if the government produces any evidence in favor of its action. This makes reversal extremely difficult.
*Does nothing to address problems at Fannie Mae and Freddie Mac. These two government-sponsored housing giants helped fuel the housing bubble. When it popped, taxpayers—because of an implicit guarantee by the U.S. Treasury—found themselves on the hook for some $125 billion in bailout money. Not only has little of this amount been paid back, but the Treasury Department recently eliminated the cap on how much more Fannie and Freddie can receive. Yet the bill does nothing to resolve the problem or reform these government-run enterprises.
I’m reading a terrific history of Chicago corruption by James Merriner, Grafters and Goo Goos: Corruption and Reform in Chicago, 1833-2003, who writes of the ageless, interdependent relationship between Windy City politicos and “goo goos” (the derisive term for good government reformers). The derision is well-earned. In Chicago, and in Chicago-on-the-Potomac, “reform” has always entailed wealth redistribution under the guise of public service. And it has inevitably led to more corruption. A dominant constant in corruption and “reform,” Merriner concludes, is “the steady expansion of governmental intervention in the economy and everyday life. The problem, corruption in government, always has galvanized reformers to reduce the amount of corruption with stricter laws and regulations. By the now the true remedy might lie in addressing the other side of the equation: reduce the amount of government.”
Or as I put it in Culture of Corruption: As government grows, corruption flows.
Along with an ocean of boodle.