Monday, July 9, 2012

Mitt Romney's Crony Capitalism

Mitt Romney has announced a plan to hand out billions of dollars of taxpayer money for free to banks indefinitely. As president, he would reinstate an egregious student loan policy that subsidizes banks at the expense of taxpayers. The Obama Administration and Congress agreed to eliminate this policy just over two years ago. Tracy Jan at the Boston Globe has the story:
Mitt Romney promises to usher private lenders back into the federal student loan market...The prime beneficiaries, critics say, would be banks and loan companies that stand to reap a financial boon through subsidies to make nearly risk-free, government-backed loans. They are the same firms that benefited from the system that existed for decades before 2010, when President Obama required that the government issue all federal student loans.
Unfortunately, Ms. Jan tries to play objective by writing "critics say" in the middle of her explanation. But this policy solely benefits banks at the expense of taxpayers. That is not simply the opinion of critics. That is a factual description of the policy.

When banks lend money, they normally take on the risk that the loan might default. Therefore they determine selection criteria for potential customers. However, when it comes to student loans, most banks refuse to lend to students because it is too risky. For many years, the federal government guaranteed low-interest student loans made by private banks based on selection criteria determined by the government. But this system ensured pure profits for the banks funded by taxpayer dollars.

It was one of the clearest examples of crony capitalism in history. The federal government took all of the risk. The banks had no role to play except collecting profits as middlemen. Legislators tried to eliminate this subsidy for years, but bank lobbyists prevented anything from changing. Finally, the Obama Administration and its allies in Congress fought hard to eliminate this massive subsidy. Tens of billions of dollars were being wasted. The policy was eliminated by legislation passed in the spring of 2010. Since then, low-interest student loans have been issued directly by the Department of Education.

Now, Mitt Romney wants to bring back this massive taxpayer-financed subsidy for the banks. Why?
Private lenders, however, argue that Obama’s move in 2010 cost the industry thousands of jobs as companies went out of business or shut down divisions that dealt with the servicing of such loans. And the Romney campaign says reintroducing private competition would spur innovation that could help prevent students from borrowing more than they should.
Private lenders made massive profits from the federal subsidy they used to receive to act as middlemen in the student loan system. Naturally, when the subsidy went away, those profits and the jobs that they created went away. But the companies were rendering no service at all. They were simply accepting large amounts of taxpayer money from the government to shuffle papers around.

The Romney campaign claims reintroducing a policy that subsidized banks for decades will spur innovation. But if this were the case, wouldn't they just point to innovations that had been spurred by the past existence of the policy? The policy is nothing new. It existed and provided no benefits except to the banks it subsidized. If it did provide benefits, the Romney campaign could easily cite those benefits. But instead it vaguely suggests the potential for future innovations.

This policy ably represents the core of Mitt Romney's philosophy, and indeed the philosophy of the Republican Party at large in the 21st century. The philosophy is very simple. The federal government should be used to extract resources from the people of the United States (as well as plenty of other people around the world) and then use those resources to subsidize large corporations, business interests and the wealthy. Essentially, it's profiteering philosophy of Bain Capital writ large: loot the country to line your own pockets.

Mitt Romney, in his younger days, fondling his loot.
Mitt Romney is the GOP's presumptive nominee and therefore the leader of the party. But he is far from the only prominent Republican to espouse the loot-the-nation-for-profit ideology. Congressman Paul Ryan has gained notoriety for his so-called "Roadmap to the Future" budgets, which have been enthusiastically embraced by Romney along with most Congressional Republicans. And guess what? Ryan is also an enthusiastic support of indefinite taxpayer subsidies for banks:
For decades, the government helped make college more affordable through “guaranteed loans”—it encouraged banks to lend money to students by promising to repay the banks if the students defaulted. Banks were making billions of dollars in profits at virtually no risk. The General Accounting Office, a kind of in-house fiscal watchdog for the federal government, issued sixteen reports over the years noting how the government could save money simply by issuing the loans itself and cutting out the middleman.
It was the simplest, no-brainer pot of savings you could find—ending pure corporate welfare, just like in the movie Dave. The cause attracted support from think tanks, as well as the moderate Wisconsin Republican Tom Petri, an eclectic reformer who is sort of the real-life version of the Paul Ryan character who appears on television. Two National Review editors endorsed eliminating guaranteed loans in an article advocating a new reform conservatism.
The banks lobbied fiercely to protect their gravy train. Among the staunchest advocates of those government-subsidized banks was … Paul Ryan, who fought to protect bank subsidies that many of his fellow Republicans deemed too outrageous to defend. In 2009, Obama finally eliminated the guaranteed-lending racket. It could save the government an estimated $62 billion, according to the CBO.
Paul Ryan has developed a reputation as a fiscal conservative concerned with reducing the federal budget deficit. Yet he fiercely defended a pointless subsidy for banks, because he is not a fiscal conservative at all. He is, like Romney, a crony capitalist.

Among the more well-publicized aspects of Ryan's "Roadmap to the Future" are his plans for Medicare. His plan eliminates the program and replaces it with vouchers provided to seniors to purchase private health insurance on their own. Many have noted that the plan would have the vouchers become smaller over time, which would essentially mean that many seniors would have to go without health care as they did before Medicare existed. Some might even suggest a better name for Ryan's "Roadmap to the Future" would be the deathless Daily Show description of the 2008 financial crisis: "Clusterfuck to the Poorhouse."
Paul Ryan: Clusterfucker
But it's just as important to realize that this policy functions as way to subsidize private companies at taxpayer expense. It is part of the looting ideology I outlined earlier. After all, the proposal is to eliminate Medicare and use the money to give seniors vouchers that they would then give to private health insurance companies. Essentially, this is just another way to transfer resources to private corporations that do nothing except take taxpayer money.

Private health insurance companies spend most of their time avoiding the costs of providing coverage to the sick. That is, their purpose is to avoid providing health care. Why would anyone take an extremely popular program like Medicare and eliminate it in order to give more money to private companies that provide no real service to anyone? Only if you believed in crony capitalism's central premise: the purpose of the federal government is to loot the people in order to subsidize corporations and the wealthy.

It is worth remembering all of this whenever Republicans say they want a free market. More often than not, this is a lie. Guaranteeing student loans so that banks can make risk-free profits has nothing to with free markets. Republicans use free market terminology to mask an agenda that is fundamentally about using the state as vehicle for endless looting. Given this reality, Mitt Romney is actually a perfect candidate to act as their standard-bearer. He was an expert at looting the private sector when he worked  at Bain Capital. If he becomes President of the United States, he will doubtlessly use this expertise to massively loot the public sector.

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