Are Argentines really lawless, or are they simply overregulated?
Corruption: The Week in Review
This past week brought more news of wholesale public corruption. Jaw-dropping except that it’s becoming routine, and we are becoming inured.
Standard & Poor’s paid a $1.5 billion settlement ($125 to Calpers, with the remainder split between the feds and the states) over its alleged manipulation of ratings of mortgage-backed securities back in 2004-2007. If the allegations are true, $1.5 billion is a pittance to pay for the wreckage wrought in the mortgage meltdown; once again, a company got off cheap because it’s too big to jail. But the company admits to no wrongdoing. Its now-abandoned defense was that it—but not its competitors, such as Moody’s—was hit with a prosecution in retaliation for its downgrade of the U.S. Treasury’s debt in 2012. The key, controverted piece of evidence was a “you’ll be comin’ down now” phone call, three days after the downgrade, by then-Treasury Secretary Tim Geithner to the chairman of S&P’s parent company. The chairman filed a sworn affivadit to that effect; Mr. Geithner denies having made threats, and that may be true. (Fiscal repression these days is way more subtle.) But if this did happen we are one step away from Argentina, where economists get fined and jailed for reporting inflation numbers at variance with the government’s story.
Due to the settlement, we’ll never find out and only two points are certain. One, settlements of this sort have become purely transactional, between company lawyers who are really good dealmakers and public officials in the role of hedge fund bandits with a badge. Two, the true settlement price isn’t the advertised dollar figure. It’s that in the absence of an actual trial, we all have added reasons to believe what we want to believe of financial companies and of our government—including the absolute worst. This is a poisonous way of running a country, and a great way to poison our politics.
In other news the President bullied the Federal Communications Commission (FCC), a nominally independent expert agency, into regulating the entire Internet as a common carrier and a public utility, under a 1934 statute. The Wall Street Journal’s account of the White House’s “net neutrality” crusade is bracing. E.g.:
[I]t took the November elections to sway Mr. Obama into action. After the Republicans gained their Senate majority, Mr. Obama took a number of actions to go around Congress… Senior aides also began looking for issues that would help define the president’s legacy. Net neutrality seemed like a good fit.
Lawlessness as a principle and out of spite. Is that cool, or what?
Experts whose judgment I trust say that “net neutrality” will be very bad for innovation, cyber security, privacy, and for that matter neutrality. Maybe. I think the outcomes will depend largely on how much graft we can crank through the system and to what ends. In an opinion piece (by good fortune or happenstance, also in yesterday’s Journal), Senator Kelly Ayotte and the FCC’s Ajit Pai plead for “Ending Welfare for Telecom Giants.” Turns out, the FCC’s spectrum auctions (to the tune of $45 billion last year) have become a bit of a racket. Under a 1993 statute, the government extends substantial subsidies to “small” bidders, with the principal result that big companies have set up small shell applicants and are now looking to bilk taxpayers for some $3 billion. We know that this is not what Congress had in mind.
Why? Because for two decades and counting, Congress has looked to the FCC and its spectrum auctions as a profit-maximizing operation. The FCC’s Chairman in the 1990s, Reed Hundt, famously proclaimed that his agency’s initials stood for “Federal Cash Cow.” In the quest for easy money the FCC occasionally screwed existing licensees out of their entitlements, with friendly assists from a “show us the money” Congress. See, e.g., Advanced Communications Corp v. FCC (D.C. Cir. 2004). (The opinion references the “cash cow” comments. The highly informative cert petition, regrettably denied, was penned by none other than now Chief Justice John Roberts; it’s here.) What with all these shenanigans when they free up spectrum, can you imagine what happens when they allocate and price it?
All in all, a good week for the government.