Category Archives: Deregulation

“A Republican Ruse”

The Republicans haven’t taken over yet but they’ve made their plans known and it won’t come as much of a surprise that their top priorities are tax cuts. One of the very first changes will be gaming the system that tracks whether or not tax cuts work. By every legitimate measure, including common sense, they don’t. The Pubs are going to change all that.

AS Republicans take control of Congress this month, at the top of their to-do list is changing how the government measures the impact of tax cuts on federal revenue: namely, to switch from so-called static scoring to “dynamic” scoring. While seemingly arcane, the change could have significant, negative consequences for enacting sustainable, long-term fiscal policies.

Whenever new tax legislation is proposed, the nonpartisanCongressional Budget Office “scores” it, to estimate whether the bill would raise more or less revenue than existing law would.

***

[The] conventional estimates do not, however, include any indirect feedback effects that tax law changes might have on overall national income. In other words, they do not incorporate macroeconomic behavioral changes.

Dynamic scoring does. Proponents point out, correctly, that if a tax proposal is large enough, then those sorts of feedback effects can aim the entire economy on a slightly different path.

“Dynamic scoring” basically allows the injection of unjustified assumptions about the future performance of the economy. IOW, adding a baseline article of faith from Reaganomics that all tax cuts on the wealthy raise revenues and if they don’t, it’s because they weren’t deep enough.

Federal deficits are on an unsustainable path (as it happens, because of undertaxation, not excessive spending). Simply cutting taxes against the headwind of structural deficits leads to lower growth, as government borrowing soaks up an ever-increasing share of savings.

The most optimistic dynamic models get around this by assuming that the world today is in fiscal equilibrium, where the deficit does not grow continuously as a percentage of gross domestic product. But that’s not true. If you add the reality of spiraling deficits into those models, they don’t work.

To make these models work, scorekeepers must arbitrarily assume either that we tax more and spend less today than is really the case — which is what they did for the Camp bill — or assume that a tax cut today will be followed by a spending cut or tax increase tomorrow. Economists describe such a move as “making counterfactual assumptions”; the rest of us call it “making stuff up.”

Again IOW, they’re going to enshrine in law a faith-based assessment mechanism guaranteed in advance to justify both their rosy predictions and their brutal get-tough-on-the-poor cuts to human services along with their go-easy-on-corporations cuts to everything from the SEC to the FDA. They will now be able to point to government-authorized conclusions that everything is fine even as it collapses around ordinary folk not rich enough to protect themselves from it.

The Republicans’ interest in dynamic scoring is not the result of a million-economist march on Washington; it comes from political factions convinced that tax cuts are the panacea for all economic ills. They will use dynamic scoring to justify a tax cut that, under conventional scorekeeping, loses revenue.

When revenues do in fact decline and deficits rise, those same proponents will push for steep cuts in government insurance or investment programs, because they will claim that the models demand it. That is what lies inside the Trojan horse of dynamic scoring.

A win-win. When their tax cuts make the economy worse, their scoring model will demand more tax cuts as a fix.

Priority #2 is likewise financially related: further weakening if not killing outright Dodd-Frank, once again allowing banks to rig their own scams.

The Dodd-Frank financial reform law was supposed to curb speculation in swaps. But as The Journal has reported, hedge funds are increasingly using swaps to wager on whether weak firms will live or die. RadioShack, the troubled consumer electronics retailer, is one of several prominent examples. In December, RadioShack’s total debt came to about $1.4 billion, but swaps outstanding on the performance of the debt totaled $23.5 billion. Similarly, J.C. Penney, the ailing department store chain, had total debt of some $8.7 billion, but swaps outstanding on the debt totaled $19.3 billion.

Those gaps suggest excessive speculation, though it is hard, if not impossible, to gauge the precise exposure of funds to big losses. What is known is that a hedge fund that is betting on a company’s default has an incentive to push it over the edge. Conversely, a fund that is betting a troubled company will not default has an incentive to keep it afloat, at least long enough to avoid a big payout. Either way, the company becomes a pawn in a financial game.

Speculative activity is likely to increase. Last month, Congress repealed an anti-speculation provision of Dodd-Frank that would have prevented federally insured banks from conducting several types of swap transactions. In addition, the Federal Reserve recently gave the banks two extra years to meet a Dodd-Frank provision requiring them to sell their investments in private equity funds and hedge funds.

And when the 2 yrs are up, the Fed will extend the deadline for 2 more yrs and then 2 more after that and so on and so on.

The Democrat minority will, of course, “compromise” by unconditionally surrendering when their corporate sponsors tell them to.

And so it goes.

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Even When They Lose, They WIN! – Vultures, Vampires, and Zombies

“Dead people are the newest frontier in debt collecting…”

I am NOT making up this vulture stuff, OK? This is our society as it really is.

red-headed_vultureThe banks need another bailout and countless homeowners cannot handle their mortgage payments, but one group is paying its bills: the dead.

Dozens of specially trained agents work on the third floor of DCM Services here, calling up the dear departed’s next of kin and kindly asking if they want to settle the balance on a credit card or bank loan, or perhaps make that final utility bill or cellphone payment.

The people on the other end of the line often have no legal obligation to assume the debt of a spouse, sibling or parent. But they take responsibility for it anyway.

“I am out of work now, to be honest with you, and money is very tight for us,” one man declared on a recent phone call after he was apprised of his late mother-in-law’s $280 credit card bill. He promised to pay $15 a month.

Dead people are the newest frontier in debt collecting, and one of the healthiest parts of the industry. Those who dun the living say that people are so scared and so broke it is difficult to get them to cough up even token payments.

That should read “token payments they don’t owe“. So completely out-of-control greedy has our amok-running banking industry become that they’re going after money they cheerfully and openly admit isn’t owed to them by the people they’re harassing.

Well, if you can “retaliate” against some country that didn’t do anything to you because there’s no profit in invading the country actually responsible for the attack on you, why not? But it doesn’t end there, no no no.

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Federal Reserve Admits Deregulation Doesn’t Work, Claims Stupidity Prevented It Figuring That Out Earlier

Well, the system had to implode – again – but all of a sudden even the bankers are paying attention. They get it.
Quote:

It was an old-fashioned bank run that forced Bear Stearns to turn to the government for salvation on Friday. The difference is that Bear Stearns is not a commercial bank, and is therefore not eligible for the protections those banks received 75 years ago when Franklin D. Roosevelt halted bank runs with government guarantees.

Bear was, instead, emblematic of a financial system that grew up over the last two decades, one that largely marginalized traditional banking and that enabled lenders to evade much of the regulatory framework that had also begun during the Roosevelt administration.

The new system enabled loans to be made by almost any financial institution with the money coming from the sale of increasingly complicated securities backed by the loans.

Regulators believed that the new system spread out the risk. Alan Greenspan, a former chairman of the Federal Reserve, said the system had transferred risk from banks — which he called “highly leveraged institutions” — to “stable American and international institutions.”

It turned out he was wrong. Much of the risk had remained with commercial banks, but packaged in such a way that they were required to put aside fewer reserves to protect against losses. Much of the rest of the risk ended up with financial institutions that relied on their ability to borrow at low rates whenever they needed it.

“A sizable fraction of long-term assets — assets with exposure to different forms of credit risk—ended up in vehicles financed with very short-term liabilities,” Timothy F. Geithner, the president of the Federal Reserve Bank of New York, said last week in a speech. “As is often the case during periods of rapid change, more significant concentrations of risk were present than was apparent at the time.”

Speak for yourself, Forked-Tongue Tim. It was apparent to me when I was arguing against it in the 80’s. You didn’t see it because you didn’t want to see it. It was perfectly obvious to everyone else.

Greed makes you go blind, Tim. Didn’t your Ma ever tell you that? Or were you stealing change from her purse at the time and not listening?
Sheesh.

Bush Admits Deregulation Doesn’t Work, Closes Barn Door After Horse Is Gone

Well, it has happened. Quietly, stealthily even, but it has happened:

Bush has admitted that deregulating the banking industry didn’t work.

After months of watching a growing credit crisis made worse by steadily eroding home prices, the Bush administration responded on Thursday with the outlines of a plan that officials emphasized is meant more to prevent future crises than to address the current one.

The plan, which relies primarily on state regulators and private industry to tighten their oversight of financial markets, calls on states to issue nationwide licensing standards for mortgage brokers.

(emphasis added)

Loverly. What we have here, children, is a massive failure to communicate.

Well, all the Bush Buddies have made their money and the Emperor is making sure they can keep it without going to jail for, you know, malfeasance, fraud, all that happy horseshit. The economy is in the shitter because of their predatory practices and outright thievery, but never mind. NEXT TIME we’ll get them.

And how will we get them, boys and girls? Why, by putting the regulations that we removed back in place. IOW, by re-regulating the financial industry.

Except – whoa, now – we’re not going to do it. Oh no. We  are – in the best traditions of rich boys used to having servants around to do the dirty work – going to tell the states to re-regulate, thus guaranteeing a mish-mosh of laws varying from state-to-state allowing mucho wiggle room for the investment banking class to go right on ripping people off in multiple national locations while states argue about whose laws apply and who’s got jurisdiction.

Marvelous. Back to the madcap 20’s when there were no Federal regs and banks played on the legal differences to protect themselves from what would otherwise have been charges of criminal fraud right up to the very fucking moment it all collapsed.

What do you think of His Holiness now?

SEC Opens Door to Accounting Fraud – Again

We all know about movement conservatives’ mania for “personal responsibility” – if somebody of limited means overextends their credit and gets hit with massive hidden charges or makes their payments late and gets hit with outlandish late fees, why, that’s their “responsibility” and they should have known better. Now they have to pay the price of their ignorance.

We also know that the concept of “responsibility” does not extend to corporations as far as they’re concerned. If corporations duck taxes or make their profits look bigger than they are through unethical accounting tricks a la Enron, WorldCom, Tyco, et al, why, that’s not something they need to take “responsibility” for and regulators need to get off their backs. In fact, armies of lobbyists will descend on legislators to argue that the poor corporations are victims of governmental abuse and in need of relief.

The Republican-dominated SEC (Securities and Exchange Commission) which is supposed to regulate corporate financial accounting to make them “responsible” and keep them from stealing from their investors, the Treasury, and us, apparently agrees. Led by Bush appointee Christopher Cox, it just disemboweled the Sarbanes-Oxley law passed a few years ago to prevent more Enrons and Arthur Andersons.

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Deregulation: The 3rd Conservative Failure

A couple of weeks ago I debunked two of the Right’s more cherished fantasies: the utter failure of low-tax policies and privativation in actual practice, an outcome that doesn’t surprise anybody who hasn’t turned their brain over to conservatives for ritual slaughter and squashing. I’ve been meaning to take on the third for a while now, and today’s WaPo gives me a reasonably good excuse. This may not be the most egregious of instances but it will serve nicely as a classic example of how the corporatocracy works when unrestricted by govt regulation – it takes as much as its fat little fingers can get hold of.

That’s right. I’m talking about the Deregulation Myth. Continue reading

They Never Quit

Two summers ago, California’s deregulated electricity market proved to the whole country how unscrupulous corporate operators could–and were perfectly prepared to–take advantage of the lack of govt oversight to extort $$$Billions$$$ by manipulating that market. And what is the CA state govt’s response? Ahnud wants more deregulation, of course. Not surprisingly, there is opposition.

SACRAMENTO — Consumer groups said Wednesday that they might push for a ballot initiative that could close the door on attempts to deregulate California’s electricity market should Gov. Arnold Schwarzenegger veto a key power bill making its way through the Legislature.The initiative would ask voters to permanently prohibit manufacturers, big-box stores and other major energy consumers from buying electricity at unregulated prices — a key feature of deregulation scenarios favored by the Schwarzenegger administration, which has said consumers should be allowed to “choose their energy providers.”

“If we can figure out a way to bring this directly to the people of California, I think the response would be overwhelmingly favorable,” said Bob Finkelstein, executive director of the Utility Reform Network, a San Francisco ratepayers advocacy group also known as TURN. “After the [deregulation] experiment blew up in their faces in 2001, they’ll say, ‘Yeah, we’re not going to do that again.’ ”

TURN’s threat to try to decide the future of the state’s electricity market in the voting booth came after a news conference on the statehouse steps aimed at increasing pressure on Schwarzenegger to support a bill by Assembly Speaker Fabian Nuñez (D-Los Angeles).

Nuñez’s bill, AB 2006, represents the first major attempt by lawmakers to revamp California’s electricity generation, transmission and marketing system since a 1996 deregulation law led to rolling blackouts and spiking prices in 2000 and 2001.

Nuñez and his allies say AB 2006 would protect against shortages by requiring that utilities have more than enough electricity on hand to handle demand on the hottest days — either from their own power plants or through long-term contracts with private generating companies. The bill would ensure that utilities such as Southern California Edison Co. could charge their customers rates that were high enough to pay for the cost of building power plants.

The now-rescinded 1996 deregulation took utilities largely out of the power-generating business and forced them to obtain all their electricity on a daily spot market that turned out to be prone to manipulation by traders and private generating companies.

In its current form, the Nuñez bill contains no provisions for a free market for electricity, and Schwarzenegger has telegraphed that he would veto it if it made it to his desk before the Legislature adjourns this month.

The governor has said that he wants lawmakers to pass a deregulation bill and leave other restructuring of the state’s electricity market to the California Public Utilities Commission, whose members are appointed by the governor. Nuñez counters that the issue is so important that it must be fully vetted by elected legislators, not the governor’s appointees, to ensure that small-business and residential customers aren’t hit with sky-high utility bills.

You gotta admire the way these guys can turn their backs on reality, no matter how stark the lesson. What kind of a jackass could live through the deregulation fiasco of 2001 and come out of it proclaiming the need for more deregulation? A Republican, that’s what kind.

Flexibility is not a Republican value. Neither, it would appear, is the most basic recognition of fact. Explains a few things, doesn’t it?