A crisis is a terrible thing to waste
|October 19, 2008||Posted by Jeffery J. Smith under Progress Report, The Progress Report|
A crisis is a terrible thing to waste
Treasury offers no-bid contracts, so what can regulators do?
Now that the bailout is a done deal, can regulators make it work? We trim, blend, and append two 2008 articles, one from within the DC beltway, the other from the alternative movement. The former is Taxpayers for Common Sense, their Weekly Wastebasket, October 16, Who’s Watching the Bailout? and the latter is Hazel Henderson, author of think global, act local and Ethical Markets: Growing the Green Economy and co-creator of the Calvert Henderson Quality of Life Indicators.
by TCS and Henderson
Taxpayers for Common Sense: The $700 billion bailout package enables the Treasury Secretary to waive “specific provisions” of our contracting laws — the Federal Acquisition Regulation — if he determines that “urgent and compelling circumstances make compliance with such provisions contrary to the public interest,” despite the existence of rules on the books for handling these emergencies.
Government watchdog agencies will be able to report on contracts only after they have been issued and paid. We will know how much has been wasted only after it has been wasted.
Sadly, we’ve been here before. Government skirted contracting rules when it turned to the private sector for large amounts of goods and services during Hurricane Katrina and the Iraq war. We’ve even used contracting in emergency financial bailouts before. The Resolution Trust Corporation, founded in 1989 to dispose of loans and other assets from the Savings and Loan debacle, was similarly empowered to contract with the private sector unencumbered by federal contracting regulations. The result was predictable: millions in unaudited billings and noncompetitive contracts, prompting one former RTC official to warn Congress that “the taxpayer is taking it in the shorts.”
Secretary Paulson seems poised to repeat history. This week the Treasury Department announced “a number of contracts will be awarded through other than full and open competition.”
Henderson: Economics has always been politics in disguise. During the officially encouraged speculative frenzy, money was confused with real wealth: educated healthy citizens and the basic productive eco-systems of our planet. Even though now were in dire straits, a crisis is a terrible thing to waste!
JJS: Yet waste this opportunity is what were doing. Even if Hazel got all the regulators and ethical investors she wanted, wed still be on track for another meltdown in the future. Blaming greedy Wall Street and drowsy regulators is not inaccurate but it is irrelevant. It only makes the blamers feel better; it doesnt confront the root cause.
First, almost everyone, not just Wall Street, wants wealth from real estate. A local guy, very nice, whom youd love to have over for dinner, lost his shirt trying to flip a house. The difference between him and big bankers is not motive but scale. The local guy bets on a few houses; the brokers bet on the biggest sector in the GDP. When we shove all our mortgages into the paws of speculators, were silly to expect any other result than what we got.
Second, regulators dont know enough and cant learn enough about exotic deals like derivatives, some of which take place not between humans but their computers, running 24/7, and total a dollar value in the multi-trillions that some estimate eclipses the size of the real economy, our actual producing and consuming of goods and services. Trying to regulate that is not the rational response (but an expression of unfounded faith in government?). The rational response is to downsize the underlying mortgage market, return it to human scale.
How do we shrink mortgages? By lowering the price of property. How do we do that? We separate the value of land from the value of buildings. We publicly recover the value of land — by a tax or fees or lease or dues — and buy and sell only the building. In effect, wed pay a rent to our community for the location and a price to the seller for the building. Thus wed have to borrow much, much less.
Downstream, traders would not bother to gamble on land, since they’d have to pay all that rent for it, or on buildings, since they constantly depreciate. Without speculators bidding up values, thered be no bubbles, and no collapses. Instead of boom bust, the business cycle would climb glide, and our pensions and savings would be safe.
Meanwhile, what can we do? Adopt this tax shift, forgo wasteful subsidies, and use a hefty portion of the raised revenue to pay a Citizens Dividend, so people could get wealth from locations and replace their recent loses. Plus, we could lose counterproductive taxes. Thats how this geonomic combination of shifting taxes and subsidies would make the economy work right for everybody.
Jeffery J. Smith runs the Forum on Geonomics.
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