Christmas seems to come earlier every year. In fact, it came this week to the House of Representatives, as they passed their version of a $325 billion, six-year transportation bill. Under the stewardship of new Speaker Paul Ryan, the highway bill became a Christmas tree, and the ornaments were giant gifts to the financial industry.
It seems bizarre that financial policy would get decided in a bill to repair roads and bridges and mass transit, but that’s the whole point of the Christmas tree strategy: If a bill is deemed “must pass,” then adding ornaments to it comprises a good strategy for getting things into law that otherwise might not receive a vote.
Ryan touted this process as a positive example of new leadership. In recent years, House bills written in secret sped to the floor without the ability for alterations. But on the highway bill, over 80 amendments got a vote on the House floor, out of hundreds offered.
A cursory look into what amendments actually got a vote gives away the game, however. Of the 34 more controversial amendments that received a roll call vote, Republicans authored 25 of them. Only one Democratic amendment passed. Democrats complained about their amendments not getting a chance. In short, the open amendment process was rigged to be less open than it seemed.
As to what did get consideration, a surprising amount dealt with Wall Street. The highway trust fund, paid for through an 18.4-cents-a-gallon gas tax that hasn’t been increased since 1993, has a $16 billion annual shortfall. This would be most easily remedied by simply increasing gas taxes, so users of roads and bridges bear the cost of upgrades. But anti-tax Republicans foreclosed that option, and no gas tax amendments got a vote in the House.
The shortfall forced Republicans to search for extra revenue to fully fund the bill. The Senate hit on a great idea: cutting $16.3 billion from a 102-year-old risk-free giveaway to banks.
Member banks, in exchange for access to the Federal Reserve’s payment services and borrowing facilities, must purchase stock in the regional Fed banks. That stock cannot lose value or be sold — and it carries a 6 percent dividend. The stock operates like a membership fee, only it’s not a fee: The member banks get all of their money back within 17 years and then start earning profit on it. Most of the dividends are exempt from taxes. And nationally chartered banks have to join the Fed by law anyway, while all banks must conform to the rules of membership, so offering a dividend to give them an incentive to join the Fed — the original purpose of the scheme — has no relevance today.
Fed Chair Janet Yellen, the banking industry and its minions in Congress attacked this dividend cut, but it covered such a big chunk of the shortfall — in the Senate’s bill, it paid for one-third of it — that it appeared banks would lose their subsidy. But at the last minute, Republicans Randy Neugebauer of Texas and Bill Huizenga of Michigan devised a way to save it, by amending the bill to instead liquidate something called the Federal Reserve capital surplus account.
That’s essentially the Federal Reserve’s reserve fund, used to absorb temporary losses when the central bank adds to its balance sheet. Without a loss buffer, the Fed could show losses on its balance sheet, prompting cries of insolvency from Tea Party types. This could nudge the Fed to undesirably focus on making money to cool the political heat instead of doing what’s best for the economy. It’s a stealthy way to undermine the central bank.
It’s also a massive budgetary gimmick. The Fed already remits earnings from its balance sheet to the Treasury Department annually. This liquidation — with the Fed selling off interest-bearing assets — would reduce future earnings, just like cashing out your savings account eliminates future interest gained. But because Fed remittances aren’t on budget, it appears like it raises money. A 2002 Government Accountability Office report explains that reducing the capital surplus account creates phantom revenue for budget accounting, but would “not produce new resources for the federal government as a whole.”
Liquidating the account does take away one of the Fed’s tools to conduct monetary policy. In fact, the main policy tool it has left to ensure a particular interest rate involves paying banks interest on their excess reserves, a payment that’s already at $6 billion a year and will subsequently grow higher as rates rise. So not only did the amendment protect one big bank subsidy, it facilitated the continuation of an even bigger one.
The financial industry’s main argument against the measures it didn’t like was that sources of funding unrelated to our roads shouldn’t be spent on the highway bill, but that’s exactly what Congress did with the Fed’s capital surplus account. I guess it’s okay as long as big banks benefit.
Mind you, the House didn’t touch the other revenue-raisers in the bill, including a preposterous provision to force the IRS to hire private debt collectors to go after back taxes, something that has lost money every time it’s been tried. Only two so-called “pay-fors” were replaced: the big bank subsidy, and a measure extending fees charged by Fannie Mae and Freddie Mac to guarantee mortgages. Banks hated that one as well, because they don’t want to pay out of their mortgage profits.
Let’s make it plain, then: The hard-right conservatives committed to fighting “crony capitalism” all bailed out the banks by preserving their profits.
The highway bill will head to a conference committee with the Senate, so the bank subsidy cut could still be preserved. But since the Fed account liquidation raises much more money, that’s unlikely. The bill also re-authorizes the Export-Import Bank, which facilitates corporate exports with foreign countries. Goldman Sachs, which has recently delved into co-owning commercial enterprises that benefit from Ex-Im funding, heavily lobbied for re-authorization.
And that’s not all for Wall Street. While Republicans ultimately declined to pursue the most far-reaching deregulatory measures they had lined up for the bill, they did pass an amendment from House Financial Services Committee Chairman Jeb Hensarling. This amendment packaged 15 separate bills, many of which have already passed the House previously but might not have gotten through the Senate.
Hensarling describes these as “technical changes.” But as Americans for Financial Reform point out, some go much further. The “SBIC Advisers Relief Act” would pre-empt states from regulating companies that invest in and advise small businesses. It would also allow private equity firms to grow their balance sheets above established limits that trigger additional oversight. The “Improving Access to Capital for Emerging Growth Companies Act” would allow such companies to omit disclosure of their financial dealings to investors. It would also let big banks stop telling their customers about the sharing of their financial data with other companies, weakening privacy protections.
AFR’s biggest complaint is that the Christmas tree mentality will just go on, established by Speaker Ryan through this precedent. There are other must-pass bills coming up, including a bill extending tax breaks for corporations and the appropriations bills that actually fund the government. If Ryan’s okay with unrelated policy riders in the transportation bill, he’ll certainly use the same hostage-taking strategy later — in fact, he’s already vowed to do it on the spending bills. Given Wall Street’s success on the highway bill, that could mean more deregulation ahead.
Politico wondered this week whether Elizabeth Warren defeated Wall Street. The shenanigans on the highway bill suggest quite the opposite.