Tag: taxpayer funds

HUD’s ‘Wastelands’

A year-long investigation by the Washington Post into the Department of Housing & Urban Development’s HOME affordable housing program uncovered systemic waste, fraud, and abuse. The tale is yet another example of why the federal government should extricate itself from housing policy and allow the states to chart their own course.

The piece is lengthy and should be read by interested readers in its entirety, so I’ll just excerpt the Post’s findings:

  • Local housing agencies have doled out millions to troubled developers, including novice builders, fledgling nonprofits and groups accused of fraud or delivering shoddy work.
  • Checks were cut even when projects were still on the drawing boards, without land, financing or permits to move forward. In at least 55 cases, developers drew HUD money but left behind only barren lots.
  • Overall, nearly one in seven projects shows signs of significant delay. Time and again, housing agencies failed to cancel bad deals or alert HUD when projects foundered.
  • HUD has known about the problems for years but still imposes few requirements on local housing agencies and relies on a data system that makes it difficult to determine which developments are stalled.
  • Even when HUD learns of a botched deal, federal law does not give the agency the authority to demand repayment. HUD can ask local authorities to voluntarily repay, but the agency was unable to say how much money has been returned.

In a Cato essay on HUD community development programs, I cite similar examples of HOME funds being wasted. And an essay on HUD scandals shows that mismanagement and corruption in federal housing programs is hardly new. Indeed, a follow-up story from the Post that focuses on related affordable housing shenanigans in the DC area explains that housing speculators who bilked HUD in the 1980s are involved in the current troubles:

All three were convicted in a scheme in the 1980s that involved getting straw buyers to purchase properties in the District at inflated prices using fraudulent appraisals. HUD backed the loans and ultimately lost millions of dollars. The Post called it the largest real estate fraud of its kind in the city’s history; about 30 people were convicted.

The response from Congress to the Post’s expose isn’t any more surprising than the findings: it’s time for a probe! This is where members of Congress point the finger at everybody else except themselves, promise to “fix” the problems, and pay lip-service to the concerns of taxpayers.

From the statement issued by Senate Banking Committee chairman Tim Johnson (D-SD) and ranking member Richard Shelby (R-AL):

We are deeply concerned by these reports, particularly at a time when so many Americans are in need of affordable housing. Many communities across the country have successfully used HUD programs to create vital housing opportunities for their citizens. However, the Department of Housing and Urban Development, like any government agency, has a duty to safeguard taxpayer funds. The Committee takes its oversight responsibilities very seriously, and we plan to get to the bottom of this issue.

Republicans are having a difficult time naming federal programs to abolish, while Democrats would have us believe that only the federal government can take care of the “less fortunate.” For Republicans who are serious about spending cuts, HUD’s latest black eye offers an opportunity to challenge the existence of federal housing programs. For Democrats, well, perhaps one or two will start to question the sanctity of these programs.

When the Government Lobbies Itself

“National Public Radio (NPR) is paying the lobbying firm Bracy, Tucker, Brown & Valanzano to defend its taxpayer funding stream in Congress, according to lobbying disclosure forms filed with the Secretary of the Senate,” reports Matthew Boyle at the Daily Caller. Once again, a government-funded entity is using its taxpayer funds to lobby to get more money from the taxpayers.

When the bailouts and takeovers started in 2008-9, I noted that there was lots of outrage in the blogosphere over revelations that some of the biggest recipients of the federal government’s $700 billion TARP bailout had been spending money on lobbyists. And I wrote:

It’s bad enough to have our tax money taken and given to banks whose mistakes should have caused them to fail. It’s adding insult to injury when they use our money — or some “other” money; money is fungible — to lobby our representatives in Congress, perhaps for even more money.

Get taxpayers’ money, hire lobbyists, get more taxpayers’ money. Nice work if you can get it.

At the same time, Dan Mitchell wrote that companies that received government money and then lobbied for more “deserve a reserved seat in a very hot place.” Taxpayer-funded lobbying is a scandal, but it’s a scandal that has been going on for decades:

As far back as 1985, Cato published a book, Destroying Democracy: How Government Funds Partisan Politics, that exposed how billions of taxpayers’ dollars were used to subsidize organizations with a political agenda, mostly groups that lobbied and organized for bigger government and more spending. The book led off with this quotation from Thomas Jefferson’s Virginia Statute of Religious Liberty: “To compel a man to furnish contributions of money for the propagation of opinions which he disbelieves is sinful and tyrannical.”

The book noted that the National Council of Senior Citizens had received more than $150 million in taxpayers’ money in four years. A more recent report estimated that AARP had received over a billion dollars in taxpayer funding. Both groups, of course, lobby incessantly for more spending on Social Security and Medicare. The Heritage Foundation reported in 1995, “Each year, the American taxpayers provide more than $39 billion in grants to organizations which may use the money to advance their political agendas.”

In 1999 Peter Samuel and Randal O’Toole found that EPA was a major funder of groups lobbying for “smart growth.” So these groups were pushing a policy agenda on the federal government, but the government itself was paying the groups to lobby it.

Taxpayers shouldn’t be forced to pay for the very lobbying that seeks to suck more dollars out of the taxpayers. But then, taxpayers shouldn’t be forced to subsidize banks, car companies, senior citizen groups, environmentalist lobbies, labor unions, or other private organizations in the first place.

Dr. Frankenstein on His Creation: It’s All The Monster’s Fault

As I have explained on numerous occasions, supporters of the Student Aid and Fiscal Responsibility Act (SAFRA) – which would end federal guaranteed student loans, turn everything into lending direct from Uncle Sam, and spend the resulting savings and way much more – have often shamelessly promoted the bill as a boon to taxpayers when it will almost certainly cost them tens-of-billions.  Where they have generally been right is in rebutting criticisms that SAFRA would be a federal takeover of a private industry. With lender profits all but assured under federal guaranteed lending, the vast majority of student loans haven’t been truly private for decades.

Unfortunately, SAFRA advocates are just as clueless – or, more likely, rhetorically unbridled – about what constitutes a private entity as are status-quo supporters. Case in point, an article in today’s Huffington Post that, along with U.S. Secretary of Education Arne Duncan, attempts to portray the suddenly rocky road ahead for SAFRA as a result of evil lender lobbyists dropping boulders in the selfless legislation’s way:

Taking aim at Sallie Mae, the largest student lender in the country and a driving force behind the lobbying effort, Education Secretary Arne Duncan on Tuesday accused the company of using taxpayer funds to lobby and advertise, and cast its executives as white-collar millionaires uninterested in serious education reform.

“Sallie Mae executives have paid themselves hundreds of millions of dollars in the last decade while teachers, nurses, and scientists – the backbone of the new economy – face crushing debt because of runaway college tuition costs,” Duncan said.

Here Sallie Mae is painted in the same ugly hues as Lehman Brothers, AIG, and all the other supposedly rapacious, unscrupulous companies whose unchecked greed, we’re told, brought the American economy to its knees. (We also get the baseless but obligatory pronouncement about “crushing debt” for teachers and other toilers for the “public good.”)

But wait! Doesn’t  “Sallie Mae” sound a lot like”Fannie Mae” and “Freddie Mac”? Of course! That’s because just like Fannie and Freddie, Sallie was created by the federal government,  only with Sallie’s job being to furnish lots of cheap college loans. And guess what? Just like Fannie and Freddie, Sallie became by far the biggest kid on her block because her huge federal creator fed her and protected her for decades, not setting her off on her own until 1996. But that part of her story doesn’t fit anywhere into the evil corporation narrative, so it’s just not mentioned.  All we need to know is Sallie is private, her owners and employees make a lot of money, and that is why she is evil and dangerous.

And so the politics of demonization and denial, a staple of the recession blame game, continues. Private institutions are portrayed as malevolent predators and government as a warm, pure, protective father-figure. But there is much more accurate imagery possible when it comes to Sallie Mae: Egomaniacal Dr. Frankenstein furiously blaming the monster he created for doing exactly what he built it to do.

And some wonder why there’s such widespread outrage – the real reason SAFRA is in trouble – about ever-expanding federal power?

Out of the TARP, But Still on the Dole

While banks such as Goldman and J.P. Morgan have managed to find a way to re-pay the capital injections made under the TARP bailout, their reliance on public subsidies is far from over. The federal government, via a debt guarantee program run by the FDIC, is still putting considerable taxpayer funds at risk on behalf of the banking industry.  The Wall Street Journal estimates that banks participating in the FDIC debt guarantee program will save about $24 billion in reduced borrowing costs of the next three years. The Journal estimates that Goldman alone will save over $2 billion on its borrowing costs due to the FDIC’s guarantees.

One of the conditions imposed by the Treasury department for allowing banks to leave the TARP was that such banks be able to issue debt not guaranteed by the government.  Apparently this requirement did not apply to all of a firm’s debt issues.  These banks should be expected to issue all their debt without a government guarantee and be required to pay back any currently outstanding government guaranteed debt.

To add insult to injury, not only are banks reaping huge subsidies from the FDIC debt guarantee program, but the program itself is likely illegal.  The FDIC’s authority to take special actions on behalf of a failing ”systemically” important bank is limited to a bank-by-bank review.  The FDIC’s actions over the last several months to declare the entire banking system as systemically important is at best a fanciful reading of the law. 

The FDIC should immediately terminate this illegal program and end the continuing string of subsidies going to Wall Street banks, many of which are reporting enormous profits.

Can a Story about Government-Run Health Care Have a Happy Ending?

Fox News recently reported about how Oregon’s government-run health system gives people advice on how to kill themselves. The statist system in the United Kingdom has a different approach, relying instead on people dying as they languish on waiting lists. But the bureaucrats across the pond are not a bunch of joyless robots. They managed to divert some of their budget to produce leaflets telling kids about the cardiovascular benefits of orgasms. The Telegraph reports on this innovative use of taxpayer funds:

NHS guidance is advising school pupils that they have a “right” to an enjoyable sex life and that regular sex can be good for their cardiovascular health. The advice appears in leaflets circulated to parents, teachers and youth workers and is meant to update sex education by telling students about the benefits of enjoyable sex. The authors of the guidance say that for too long, experts have concentrated on the need for “safe sex” and committed relationships while ignoring the principle reason that many people have sex. …The leaflet carries the slogan “an orgasm a day keeps the doctor away”. It also says: “Health promotion experts advocate five portions of fruit and veg a day and 30 minutes’ physical activity three times a week. What about sex or masturbation twice a week?”

Why Promiscuous Bail-Outs Never Was a Good Idea

Jeffrey A. Miron explains in Reason why a government bail-out of most everyone was neither the only option nor the best option:

When people try to pin the blame for the financial crisis on the introduction of derivatives, or the increase in securitization, or the failure of ratings agencies, it’s important to remember that the magnitude of both boom and bust was increased exponentially because of the notion in the back of everyone’s mind that if things went badly, the government would bail us out. And in fact, that is what the federal government has done. But before critiquing this series of interventions, perhaps we should ask what the alternative was. Lots of people talk as if there was no option other than bailing out financial institutions. But you always have a choice. You may not like the other choices, but you always have a choice. We could have, for example, done nothing.

By doing nothing, I mean we could have done nothing new. Existing policies were available, which means bankruptcy or, in the case of banks, Federal Deposit Insurance Corporation receivership. Some sort of orderly, temporary control of a failing institution for the purpose of either selling off the assets and liquidating them, or, preferably, zeroing out the equity holders, giving the creditors a haircut and making them the new equity holders. Similarly, a bankruptcy or receivership proceeding might sell the institution to some player in the private sector willing to own it for some price.

With that method, taxpayer funds are generally unneeded, or at least needed to a much smaller extent than with the bailout approach. In weighing bankruptcy vs. bailouts, it’s useful to look at the problem from three perspectives: in terms of income distribution, long-run efficiency, and short-term efficiency.

From the distributional perspective, the choice is a no-brainer. Bailouts took money from the taxpayers and gave it to banks that willingly, knowingly, and repeatedly took huge amounts of risk, hoping they’d get bailed out by everyone else. It clearly was an unfair transfer of funds. Under bankruptcy, on the other hand, the people who take most or even all of the loss are the equity holders and creditors of these institutions. This is appropriate, because these are the stakeholders who win on the upside when there’s money to be made. Distributionally, we clearly did the wrong thing.

It’s too late to reverse history.  But it would help if Washington politicians stopped plotting new bail-outs.  At this stage, most every American could argue that they are entitled to a bail-out because most every other American has already received one.

Should You Vote on Keeping Your Local Car Dealership?

There are lots of reasons Washington should not bail out the automakers.  Whatever the justification for saving financial institutions – the “lifeblood” of the economy, etc., etc. – saving selected industrial enterprises is lemon socialism at its worst.  The idea that the federal government will be able to engineer an economic turnaround is, well, the sort of economic fantasy that unfortunately dominates Capitol Hill these days.

One obvious problem is that legislators now have a great excuse to micromanage the automakers.  And they have already started.  After all, if the taxpayers are providing subsidies, don’t they deserve to have dealerships, lots of dealerships, just down the street?  That’s what our Congresscritters seem to think.

Observes Stephen Chapman of the Chicago Tribune:

The Edsel was one of the biggest flops in the history of car making. Introduced with great fanfare by Ford in 1958, it had terrible sales and was junked after only three years. But if Congress had been running Ford, the Edsel would still be on the market.

That became clear last week, when Democrats as well as Republicans expressed horror at the notion that bankrupt companies with plummeting sales would need fewer retail sales outlets. At a Senate Commerce Committee hearing, Chairman Jay Rockefeller, D-W.Va., led the way, asserting, “I honestly don’t believe that companies should be allowed to take taxpayer funds for a bailout and then leave it to local dealers and their customers to fend for themselves.”

Supporters of free markets can be grateful to Rockefeller for showing one more reason government shouldn’t rescue unsuccessful companies. As it happens, taxpayers are less likely to get their money back if the automakers are barred from paring dealerships. Protecting those dealers merely means putting someone else at risk, and that someone has been sleeping in your bed.

The Constitution guarantees West Virginia two senators, and Rockefeller seems to think it also guarantees the state a fixed supply of car sellers. “Chrysler is eliminating 40 percent of its dealerships in my state,” he fumed, “and I have heard that GM will eliminate more than 30 percent.” This development raises the ghastly prospect that “some consumers in West Virginia will have to travel much farther distances to get their cars serviced under warranty.”

Dealers were on hand to join the chorus. “To be arbitrarily closed with no compensation is wasteful and devastating,” said Russell Whatley, owner of a Chrysler outlet in Mineral Wells, Texas.

Lemon socialism mixed with pork barrel politics!  Could it get any worse?  Don’t ask: after all, this is Washington, D.C.