Corporate Welfare Category

Treasury to pay investment bank millions to sell Treasury’s stake in another

Thursday, April 1st, 2010

During the Wall Street meltdown and subsequent financial crisis, the government took unprecedented steps buying toxic assets and bailing out hundreds of banks, lenders and other companies.

Among the interventions, government assumed an ownership stake in the financial giant Citigroup.  The U.S. Treasury made two separate multibillion-dollar bailouts of Citigroup in 2008 and 2009, ultimately arriving at a 7.7 billion shares (or 36 percent) stake in the company.

The Treasury Department announced on Monday that it was planning to sell its huge chunk of Citigroup back to the open market.  And to help with the sale of Citigroup, Treasury has hired the investment bank Morgan Stanley as an advisor.  According to the New York Times, Morgan Stanley stands to profit between $23 and $135 million from the deal.

To summarize, our government spent billions of dollars to bail out one investment bank and now is going to pay a separate investment bank tens of millions of dollars to unwind that bailout.  First taxpayers bailed out Wall Street – now taxpayers are paying its fees.

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Financial regulation: Mainstream doesn’t mean Main Street

Tuesday, March 23rd, 2010

Financial regulation proposals are starting to receive mainstream attention.  How often do you see an all-star cast of former Saturday Night Live members and Heidi Montag make public policy commentary videos directed by Ron Howard? (scroll down to the bottom of this post for the videos)

These videos are funny, and clearly financial sector regulation is an issue worthy of investigation.  But consider the videos’ message at the end: “The banks have billions of dollars to spend to get their message out but your speech is free.  Contact your Senators about the CFPA.”

The reality: banks are helping craft the CFPA proposal.

That’s because the CFPA – the Consumer Financial Protection Agency – was actually developed by people who receive millions of dollars from banks.  According to the Center for Responsive Politics, Chris Dodd (Chairman of the Senate Banking Committee and architect of the legislation) received his largest portion of campaign contributions from the “securities and investment” industry (which stands to be most affected by financial regulation).

As a result, the CFPA includes many special interest carve outs and exemptions.  The biggest exemptions from the CFPA are for Fannie Mae and Freddie Mac, the two government sponsored institutions widely credited with helping cause the financial crisis.  The reason they are exempted is probably the same reason they were allowed to grow dangerously big in the first place – campaign money and pressure from special interests.

The end of the ad has a call to action: “Contact your Senator about the CFPA, nothing annoys them more than having to do their jobs.”  That’s probably true.  But what Senators really need to understand is that corporate loopholes and favored exemptions benefit Wall Street, not Main Street.

Instead of creating a new regulatory agency (by the same people whose policies helped get us in a financial mess), Congress should consider how current regulations could be reformed to lower the cost of doing business.

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The Academy gets an extra dose of lobbying, Washington-style

Monday, March 8th, 2010

It’s been said, nothing is harder to kill than a government program.  What about the will of a Hollywood producer grasping for his first Oscar?

Nicholas Chartiers, producer of “Best Picture”-winning The Hurt Locker, was banned from attending the Oscars for lobbying the Academy’s judges.  Apparently, Chartiers’ peddling was part of a larger special interest problem.  The USA Today reports, “By opening the field to 10, the academy unleashed twice as many lobbyists needing half as many votes to win. It has turned the race vitriolic.”

Hollywood closely resembles Washington: the budget is growing and with it, the number of lobbyists.  As Politico recently reported, lobbyists had a record year in 2009:

Washington’s influence industry is on track to shatter last year’s record $3.3 billion spent to lobby Congress and the rest of the federal government — and that’s with a down economy and about 1,500 fewer registered lobbyists in town, according to data collected by the Center for Responsive Politics.

“Lobbyists love it … when you’ve got an activist agenda like this, and you’ve got serious problems like this, and people want to do something about it,” said James Thurber, director of American University’s Center for Congressional and Presidential Studies.  “It is the most active time that I have ever seen in the advocacy business — from 1973 on.”

Just as the Academy created entrenched interests by dangling the Best Picture reward in front of more films, Washington has created new classes of entrenched interests lobbying hard to reap the rewards of unprecedented government spending.

When there’s more up for grabs, more people want it.

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Do you need a Congressman to know which way the wind blows?

Tuesday, February 23rd, 2010

The Los Angeles Times provides interesting evidence why it might be a bad idea for government to decide which emerging technologies deserve investment.  The paper reports that many clean energy projects are “on hold” because investors are uncertain about which way the political winds in Washington are blowing.

When government meddles in the market, it creates uncertainty among buyers and sellers that leads to inaction.  It also unfairly picks winners and losers –typically the companies with the best lobbyists win, not necessarily those with the best products.

In his State of the Union address the President declared, “The nation that leads the clean energy economy will be the nation that leads the global economy. And America must be that nation.”  Only time will tell how valuable clean energy will be in determining who leads the global economy.  Though one thing is for sure: the private sector must make this determination.  This is the only way Americans can be certain that worthy technologies and the most promising projects receive funding.

Voters agree: a new survey found 51 percent of adults, including 49 percent not affiliated with either party, believe business leaders know how to grow their businesses better than government.

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The Odd Couple: 5 unfortunate similarities between Bush and Obama

Tuesday, February 16th, 2010

At first glance former President Bush and President Obama seem like opposites when it comes to economic policy making.  Talk of Bush as a free-marketeer and deregulator abounds as Obama’s reputation as a big spender and intervener grow stronger by the day.  A closer look shows their economic policies have more in common than meets the eye.

5. They love to spend. Bush passed a $3 trillion budget for 2009.  Obama posted a $3.5 trillion budget in 2010.  Bush doubled the debt to almost $6 trillion and Obama’s plans would leave us with an IOU of an additional $8.5 trillion by 2020.

4. They shop at the same stores. Contrary to popular belief, defense and homeland security spending only made up about 40 percent of Bush’s new spending.  He increased spending across most non-defense categories – like education, Medicare, Medicaid, income security and regional development – by four to six times the rate of inflation.  In Obama’s first half year in office, as he demanded a departure from the “investment deficit” years under Bush, these budgets rose another 70 percent or 40 times the rate of inflation.

3. They dabble with stimulants. In 2001 and 2008, Bush spent billions on rebates to stimulate consumer spending.  In 2009, Obama upped the ante with his $862 billion stimulus package.

2. They give sweetheart deals to failing corporations. Obama carried out Bush’s unpopular $700 billion bailout for failing corporations.  Together, the presidents have bailed out over 600 businesses since Spring 2008.

1. They enjoy regulating in their free time. Once again contrary to popular belief, President Bush was the biggest regulator since Richard Nixon.  Under his leadership in 2007, the number of pages of regulation added to the Federal Register reached an all-time high of 78,090  – a 21 percent increase from Bush’s first year.  And spending on regulatory activities rose to $42 billion in 2009 – a 62 percent increase.  Since taking office, Obama has proposed a large and sweeping increase in regulation that many worry could lead to another financial crisis in the future.

Despite rhetoric that suggests the contrary, President Obama’s economic policies are strikingly more of the same failed policies that Bush tried before him.  This is unfortunate because, as New York Times columnist Paul Krugman claims, the last decade has seen declining private-sector employment and declining median household income.

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Posted in Blog, Corporate Welfare, Government Overspending, Government Spending, Rules and Regulations, The Administration | 8 Comments »

Corporate welfare: everyone is against it, so why does it keep getting worse?

Monday, February 8th, 2010

If there’s one thing that has everyone across the ideological spectrum fed up, it’s corporate welfare.  Corporate welfare is a term to describe when government gives hand-picked businesses money or favorable treatment.  Business and government curling up in bed together has been a growing problem since the country began but became much more salient with last year’s unpopular bailouts to over 600 businesses.

It wasn’t just the bailouts.  Public opinion has been turning against stimulus funding as it looks less and less like money is going to the highest-need use and more and more is being used to unfairly pick winners and losers among businesses.

Left-of-center political commentator Robert Reich cites corporate welfare as the leading concern of “the mad-as-hellers” – his label for a third party of angry Americans made up of folks from the left and right, of which Reich counts himself a member.

Reporter John Stossel is joined by many on the right trying to drive a wedge between corporate welfare, or “crony capitalism” as he calls it, and free-market capitalism.  This camp points to the causes of the financial crisis and the government’s responses as recent evidence of just how bad the problem has become.

President Obama has stepped up his rhetoric against corporate welfare lately – claiming in his State of the Union address that, along with everyone else, he “hated” bailing out reckless businesses;  and he continues to lash out against lobbyists and interest groups.

So why does it continue?  Why is corporate welfare, the great unifying threat that we all agree must be stopped, not receding but instead coming off its biggest growth year yet?

The reality is that politicians have fed this beast for so long, they’re having trouble reining it in.  Whenever government gives more power and money to business or interest groups, it creates a new constituency that will fight tooth and nail to keep – and grow – its funding.

This process is bad for growth and bad for democracy.  Stay tuned to the Bankrupting America blog as corporate welfare will be a major issue that we tackle.

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