BIG MONEY'S TRIFECTA

They’re baaaaaack . . .

Yesterday, minutes before the government ran out of money, 162 Republicans in the House, with support from 57 Democrats passed a $1.1 trillion spending bill for fiscal 2015 by a vote of 219 to 209. The bill is now on its way to the Senate, where it will likely be passed. President Obama has indicated he will sign it.

While Washington buzzes about the newfound spirit of “bipartisanship,” and “compromise” averting a government shutdown, Big Money celebrates the completion of their legislative trifecta initiated more than 30 years ago.

First came Reagan in 1981, slashing income tax rates for the very rich: a 60 percent reduction in the top tax bracket from 70 percent down to 28 percent. The reduction was gradually pared by the Presidents Bush the elder, Clinton and Obama who combined to raise the top bracket to just under 40 percent, still a hefty 43 percent reduction from pre-Reagan levels.

Then came George W. Bush, slashing tax rates on capital gains, dividends and “death taxes,” helping the wealthy retain the benefits of the vast fortunes accumulated during three decades of lucrative Defense Department contracts, outsized speculative gains on Wall Street and corporate C-suite compensation run amok, all relatively lightly taxed.

Now the 2015 House’s spending bill for fiscal 2015 completes the trifecta by allowing Wall Street to again fall back on the American taxpayer -- via the Federal Deposit Insurance Corporation (FDIC) -- to bail out catastrophic losses banks might suffer on risky derivatives trading in banks’ investment banking subsidiaries. This provision wipes out the signal achievement of the Dodd-Frank legislation separating the banks’ liabilities of commercial and investment banking activities to prevent such bailouts from happening.

This means Wall Street would be pretty much back to business as usual before the 2008 Crash, taking enormous risks, privatizing massive gains while socializing huge losses -- the so-called “moral hazard.”

This moral hazard in finance invites investment banks to place riskier bets than they otherwise would using borrowed money, knowing that catastrophic losses from such leveraged bets will ultimately be covered by taxpayers through the FDIC, which insures bank deposits to the extent of $250,000 per depositor, $500,000 per couple. Most people fortunate enough to have cash exceeding those amounts spread their money around several banks so as to remain under those limits.

Bottom line: under this new bill, taxpayers are back on the hook to bail out rich people and their banks, the management of which enjoy virtually unfettered opportunities to gamble with other people’s money, reaping outsized profits from gains and leaving the taxpayers holding the bag for potential colossal losses! Such losses would simply be added to the $17 trillion in national debt passed on to members of today’s young generations, who remain blissfully unaware of the massive liabilities they will eventually inherit. Republicans are counting on the whole debate over the serve-the-rich aspects of the bill to pass over the heads of the critical mass of the electorate, happily distracted by digital entertainment. 

With essentially nothing learned from the Crash of 2008, given the reinstatement of the moral hazard, Wall Street can be expected to continue placing imprudently risky bets leading to the same catastrophic result. It is insanity to repeat the same behavior and expect a different outcome. So if this bill goes through, as appears likely, the odds of another financial and economic crisis rise exponentially.

As an added measure of insurance against a popular outcry against such self-serving measures, the House obliged its wealthy campaign contributors by increasing by a factor of 10 the amount of money individuals can contribute to political campaigns. In a political system in which money equals votes, such increases further tighten Big Money’s death-grip on Washington, with the concurrence of many Democrats and the President, who in so doing reveal themselves to be opposite wings of the same bird, with Big Money as its head. Although in their defense, I should note that Democrats, recoiling from the prospect of a government shutdown if they resisted, probably figured the current bill is better than they might hope for when the next Congress meets with an expanded Republican majority in the House and control of the Senate.

House minority leader Nancy Pelosi and Senator Elizabeth Warren railed against the bill’s capitulation to Wall Street, appealing to popular resentment against bankers and wealthy campaign contributors with the wherewithal to manipulate the political process to their advantage and to the detriment of the People. Such democratic populist resistance proved futile, as it usually does when coming between Big Money and its self-serving legislative agenda.

Despite well-intentioned efforts from both the left and right to “get money out of politics,” no effort on reform on this issue (or any other) seems likely to succeed as long as it depends on legislators whose jobs rely on contributions from wealthy benefactors. The only hope for reorienting government to serve the People rather than the Rich and Powerful Elite (RAPE?) is to create a new political process that does not depend on money as “the mother’s milk of politics,” television as the dominant political medium and the couch in front of the TV as the primary political venue. Stay tuned.

David L. Smith (davidlsmith.com) is a Dartmouth- and Stanford-trained economist, blogger (cassandra-chronicles.blogspot.com) and author of “The Predicament: How did it happen? How bad is it? The case for radical change now,” and “Occupy Theaters, A New Political Process to Reorient Government To Serve The People,” both available on Amazon.