Crony Capitalism? Thanks, Big Government

Bill Frezza wrote in Forbes:

What we need most are leaders who can deliver that hope we were promised for years ago.

Would a farmer who put out a trough of slop be surprised if it attracted a bunch of pigs? Yet activists who promote ­enlarging the size and scope of government always seem to be shocked when one program after another is hijacked by corporations that find it easier to seek favors in Washington than ­customers in the marketplace. And, ­despite knowing that such corruption is inevitable, mainstream media consistently dismiss those who advocate ­curtailing government powers as ­cor­po­rate stooges.

What leads anyone to believe that unconstrained power can be channeled in ways that don’t favor the politically connected? Congressmen routinely arrive in Washington with modest means and leave as millionaires. If campaign donations are not buying legislative ­favors, what are they buying? Yet politicians who repeatedly put out the slop troughs, then theatrically rail against the pigs, are rarely penalized at the polls.

No matter how often it is used, credulous citizens continue to believe the “too big to fail” fear-mongering propaganda that both parties use to justify squandering public funds to socialize losses and privatize gains. How many times does a court economist have to be wrong about the impact of expensive economic interventions before we add him to the unemployment rolls? Yet we let the government operate under accounting principles that would land ­private businesses in jail.

If protesters are angry that Wall Street interests control the government, why do they want to increase the government’s role in the economy? For some reason they think that banging on drums and spouting incoherent slogans is more effective in influencing politicians than the proven practice of putting them on the payroll. Everyone knows the flow of campaign contributions from crony capitalists would stop in a minute if money could no longer buy legislative and regulatory favors. Yet anticorporate activists keep fruitlessly trying to cut off the flow of money instead of working to ban the favors that attract it.

How does the failure to distinguish between honestly earning profits by meeting customers’ needs and getting rich by looting the public treasury make it possible to end the latter practice without destroying the former? If we can’t define and promote a sustainable form of capitalism weaned from government corruption, where are the jobs the nation needs supposed to come from?

As class-warfare-inspired protests grow, while police are instructed to look the other way, violence is becoming a widespread means of political expression. Will Oakland, Portland and other cities burn when springtime rekindles the Obamaville encampments that serve as the most potent symbol of this failed presidency? Politicians, union leaders and other opportunists don’t seem to ­realize that encouraging this mindless thuggery will eventually blow up in their faces. One hopes the American public will recoil when innocent people are killed solely because they work for politically disfavored corporations, rather than shrug it off as collateral damage, as did the Greeks.

When the government hands out taxpayer money to crony capitalists promising “green” jobs, advocates seem to think this will magically turn them into effective innovators. How can experimental technologies based on ideological fantasies achieve sustainability by being rushed to market for political reasons? Crippling the evolution of proven energy businesses through capricious regulations and endless environmental reviews won’t make our energy future more secure, our economy more robust or high-paying jobs more plentiful.

And who can forget the role the ­military-industrial complex played in ­pioneering the crony capitalist business model? There has never been a more ­effective technique of cementing the support of politicians than strategically distributing both bases and manufacturing plants in each and every congressional district. Even as top military ­leaders mount feverish campaigns to avoid the budget ax, we can’t stop building weapons systems that their generals don’t even want.

As voters weigh the competing ­narratives of where our country went wrong and how to get it back on track, perhaps they will gain sufficient clarity to deliver a watershed election. What we need most are leaders who can deliver the hope we were promised four years ago, giving us a chance to generate the kind of prosperity we created for ourselves 30 years ago, the last time the American people realized that hyperactive government is the problem and not the solution.

And the Crisis Winner Is? Government

David Malpass wrote in WSJ:

From Greece to Washington to New York state, there's no effective mechanism to control spending.

Across Europe and the United States, the fiscal crisis is setting up an epic battle among government services, pensioners, government employees, creditors and taxpayers. There is simply not enough money coming in to pay all the promises politicians have made. The shortfalls and fights are challenging our democracies and shifting wealth from the private sector to ever bigger government.

The hope has been that Europe's debt crisis would force government downsizing in time to meet cash flow requirements. Newfound fiscal discipline would provide a silver lining to the debt crisis. But that's not working out.

Germany's insistence on centralized fiscal discipline for the euro zone will lead to a massive expansion of bureaucracies in Brussels, Frankfurt and Berlin. They'll include temporary and permanent bailout funds, dangerously intrusive powers for the International Monetary Fund and the European Central Bank, endless summits, new taxes on property, and recessions.

With Europe's government structures assured of getting even bigger, the U.K. reacted immediately by opting out. U.S. lawmakers are already objecting to the European plan to expand the IMF. As in Greece, IMF programs are antigrowth, imposing austerity on the private economy, not the government. Greece has raised value-added and property taxes, then projected revenue increases that never materialize in order to keep payments flowing to creditors and the government's entourage.

Governments on both sides of the Atlantic are trying to use the crisis to grow rather than shrink. News of Europe's fiscal incompetence abounds, but Washington had no budget at all in 2010 or 2011 and the federal deficit grew at record pace. President Obama sailed through 2011 without any significant spending cuts or government downsizing.

With year-end approaching, the federal budget horizon has contracted to two weeks. Common practice is for Congress and the president to spend as much as possible in December and then adjourn, hoping voters will forget about it after New Year's Eve.

Economic Downturn Took a Detour at Capitol Hill

Eric Lichtblau wrote in the New York Times:

When Representative Ed Pastor was first elected to Congress two decades ago, he was comfortably ensconced in the middle class. Mr. Pastor, a Democrat from Arizona, held $100,000 or so in savings accounts in the mid-1990s and had a retirement pension, but like many Americans, he also owed the banks nearly as much in loans.

Today, Mr. Pastor, a miner’s son and a former high school teacher, is a member of a not-so-exclusive club: Capitol Hill millionaires. That group has grown in recent years to include nearly half of all members of Congress — 250 in all — and the wealth gap between lawmakers and their constituents appears to be growing quickly, even as Congress debates unemployment benefits, possible cuts in food stamps and a “millionaire’s tax.”

Mr. Pastor buys a Powerball lottery ticket every weekend and says he does not consider himself rich. Indeed, within the halls of Congress, where the median net worth is $913,000 and climbing, he is not. He is a rank-and-file millionaire. But compared with the country at large, where the median net worth is $100,000 and has dropped significantly since 2004, he and most of his fellow lawmakers are true aristocrats.

Largely insulated from the country’s economic downturn since 2008, members of Congress — many of them among the “1 percenters” denounced by Occupy Wall Street protesters — have gotten much richer even as most of the country has become much poorer in the last six years, according to an analysis by The New York Times based on data from the Center for Responsive Politics, a nonprofit research group.

Congress has never been a place for paupers. From plantation owners in the pre-Civil War era to industrialists in the early 1900s to ex-Wall Street financiers and Internet executives today, it has long been populated with the rich, including scions of families like the Guggenheims, Hearsts, Kennedys and Rockefellers.

But rarely has the divide appeared so wide, or the public contrast so stark, between lawmakers and those they represent.

The wealth gap may go largely unnoticed in good times. “But with the American public feeling all this economic pain, people just resent it more,” said Alan J. Ziobrowski, a professor at Georgia State who studied lawmakers’ stock investments.

There is broad debate about just why the wealth gap appears to be growing. For starters, the prohibitive costs of political campaigning may discourage the less affluent from even considering a candidacy. Beyond that, loose ethics controls, shrewd stock picks, profitable land deals, favorable tax laws, inheritances and even marriages to wealthy spouses are all cited as possible explanations for the rising fortunes on Capitol Hill.

What is clear is that members of Congress are getting richer compared not only with the average American worker, but also with other very rich Americans.

$5 Trillion and Change

WSJ edit:

Obama's four years have seen the four highest deficits since 1946.

The political strategy behind Obamanomics was always simple: Call for "stimulus" to rescue the economy, run up the debt with the biggest spending blitz in 60 years, and then when the deficit explodes call for higher taxes. The Congressional Budget Office annual review released yesterday shows this is all on track.

CBO reports that annual spending over the Obama era has climbed to a projected $3.6 trillion this fiscal year from $2.98 trillion in fiscal 2008, or more than 20%. The government spending burden has averaged 24% of GDP, up from an average of about 20%. This doesn't include the $2 trillion tab for ObamaCare.

All of this has increased the federal debt by about $5 trillion in a mere four years. Thanks to higher revenues, the federal deficit will decline to $1.08 trillion in 2012, or 7% of GDP. But that is still the highest deficit since 1946—except for the previous three years. In other words, the four years of the Obama's Presidency will mark the four highest years in spending and deficits as a share of the economy since Harry Truman sat in the Oval Office.

And don't forget the national debt held by the public—the kind we have to pay back. On President Obama's watch, CBO says public debt will climb this year to 72.5% of the economy from 40.3% in 2008. This isn't as high as Italy or Greece, but it's rising fast toward the 90% level that begins to debilitate an economy.

We pause from this gloom for some good news: Despite the abuse they've taken, House Republicans have made some fiscal progress. CBO estimates that overall federal spending in 2012 will grow by only $3 billion, or less than 1%, which compares with double digit increases during the Obama-Pelosi years. Republicans have also tried to reform entitlements, but Democrats wanted a $1 trillion tax hike ransom for even modest cuts, which was wisely rejected.

The other part of the fiscal story is that revenues have been in the tank for five years. In 2012 revenues will hit $2.52 trillion down from $2.57 trillion in 2007. Revenues are still only 16.3% of GDP, about two percentage points below the norm.

The drought has two main causes. First, the anemic recovery in jobs and investment isn't spinning off enough new output (1.7% growth last year) to boost tax receipts anywhere near their historic level.

S.E.C. Is Avoiding Tough Sanctions for Large Banks

Edward Wyatt wrote in New York Times:

Even as the Securities and Exchange Commission has stepped up its investigations of Wall Street in the last decade, the agency has repeatedly allowed the biggest firms to avoid punishments specifically meant to apply to fraud cases.

By granting exemptions to laws and regulations that act as a deterrent to securities fraud, the S.E.C. has let financial giants like JPMorganChase, Goldman Sachs and Bank of America continue to have advantages reserved for the most dependable companies, making it easier for them to raise money from investors, for example, and to avoid liability from lawsuits if their financial forecasts turn out to be wrong.

An analysis by The New York Times of S.E.C. investigations over the last decade found nearly 350 instances where the agency has given big Wall Street institutions and other financial companies a pass on those or other sanctions. Those instances also include waivers permitting firms to underwrite certain stock and bond sales and manage mutual fund portfolios.

JPMorganChase, for example, has settled six fraud cases in the last 13 years, including one with a $228 million settlement last summer, but it has obtained at least 22 waivers, in part by arguing that it has “a strong record of compliance with securities laws.” Bank of America and Merrill Lynch, which merged in 2009, have settled 15 fraud cases and received at least 39 waivers.

Only about a dozen companies — Dell, General Electric and United Rentals among them — have felt the full force of the law after issuing misleading information about their businesses. Citigroup was the only major Wall Street bank among them. In 11 years, it settled six fraud cases and received 25 waivers before it lost most of its privileges in 2010.

By granting those waivers, the S.E.C. allowed Wall Street firms to have powerful advantages, securities experts and former regulators say. The institutions remained protected under the Private Securities Litigation Reform Act of 1995, which makes it easier to avoid class-action shareholder lawsuits.

And the companies continue to use rules that let them instantly raise money publicly, without waiting weeks for government approvals. Without the waivers, the companies could not move as quickly as rivals that had not settled fraud charges to sell stocks or bonds when market conditions were most favorable.

Other waivers allowed Wall Street firms that had settled fraud or lesser charges to continue managing mutual funds and to help small, private companies raise money from investors — two types of business from which they otherwise would be excluded.

“The ramifications of losing those exemptions are enormous to these firms,” David S. Ruder, a former S.E.C. chairman, said in an interview. Without the waivers, agreeing to settle charges of securities fraud “might have vast repercussions affecting the ability of a firm to continue to stay in business,” he said.

S.E.C. officials say that they grant the waivers to keep stock and bond markets open to companies with legitimate capital-raising needs. Ensuring such access is as important to its mission as protecting investors, regulators said.