Wednesday, August 31, 2011

The Coming Infrastructure Bank as an Off-Balance Sheet Scam

WSJ explains what the Infrastructure Bank scam will be all about:

Here's a novel idea: Have Congress create a "bank" that could borrow huge sums with only a small federal outlay and would be independent of any political interference. If you believe in this miracle, you probably thought Fannie Mae was a private company that wouldn't cost taxpayers a dime.

We're referring to Washington's latest marketing tool to sell spending to a skeptical public, a new federal "infrastructure bank." For the low, low price of $30 billion or so, President Obama says Congress can conjure hundreds of billions in new "grants and loans" to rebuild "roads, bridges, and ports and broadband lines and smart grids."

He says the bank would put "all those construction workers" back to work and "be good for the economy not just for next year or the year after that, but for the next 20 or 30 years." In a cats and dogs living together moment, the Chamber of Commerce and the AFL-CIO are both in favor. Since both unions and construction companies would be beneficiaries, this alone ought to give taxpayers pause.

This is the Fannie Mae model applied to public works. The new bank would be a government-sponsored enterprise, or GSE, whether or not anyone admits it. The bank would have an implicit subsidy for its debt because it is backed by the government. And the debt it issued would be "off-budget," which means it wouldn't show up in annual outlays. When she first proposed the concept in 2008, Connecticut Democrat Rosa DeLauro explicitly described the bank as a "public private partnership like Fannie Mae."

Such an outfit will inevitably be politicized, as similar examples have been all over the world. Japan's postal bank has been used for decades to finance public works. Japan's roads and bridges are grand but its economy has grown little in 20 years. Agribanks, regional development banks, Brazil's BNDES national bank have all become vehicles for the political allocation of credit.

Note the support of  this monstrosity by the Chamber of Commerce. Never mix up the CC with limited government, when the money flows inward to CC members the CC has no problem with government spending and scamming.


  1. It starts with an "F" and ends in "ascism".

    Looks like the government's big plan is to salavage the deflated tech and housing bubbles by blowing up a public works bubble. Genius. It worked so well before in the 1930's, right...?

  2. Wow. With this structure, we can expect a whole new class of securities coming down the pike, as Wall Street will no doubt slice and dice these loans, then repackage them into structured securities (a la MBS and CDOs). And lest you thought the Fed would not be involved, an implicit government backing means these securities can (and will) be purchased by the Fed with impunity when the defaults come.

  3. Fascism indeed. This idea scares the hell out of me.

  4. I've worked as a consultant in transportation engineering for many years. I can attest to just how corrupt (and inept) that sector (public and private side) is and how politicians are bought by cronies who run engineering corporations. I can't imagine a more corrupt sector than public works.

  5. I'm glad to see that others recognize the takeover of the the State by the corporate/financial elites for what it is.

    It starts with an "F", and though it has one in the middle, it does not start with a "C".

    Fascism is merely the corporate version of communism.

  6. How do they create this Infrastructure Bank as an Off-Balance Sheet Scam? I need more information on that.