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Sunday, June 24, 2018

Weekend Reader: “Extortion: How Politicians Extract Your Money, Buy Votes, And Line Their Own Pockets”

Extortion by Peter SchweizerToday Weekend Reader brings you Extortion: How Politicians Extract Your Money, Buy Votes, and Line Their Own Pockets by conservative author Peter Schweizer. In addition to writing for Andrew Breitbart’s website, Schweizer was also the foreign policy adviser to Sarah Palin in 2011. He is currently the president of the Government Accountability Institute and research fellow at Stanford University’s Hoover Institution. 

In Extortion, Schweizer puts partisan politics aside and explains how both Democrats and Republicans at all levels of government have created a dynamic in Washington where legislation, votes, and committee assignments all come with a hefty price tag. A description of Extortion states, “Conventional wisdom holds that Washington is broken because outside special interests bribe politicians. The reverse is true: politicians have developed a new set of brass-knuckle legislative tactics designed to extort wealthy industries and donors into forking over big donations…” 

You can purchase the full book here.

There is one big difference between the Permanent Political Class and the Mafia. In the world of organized crime, the bosses are permanently in opposition to law enforcement. They might use bribery or extortion to control judges, witnesses, and the police, but they are always on the side of crime. If a member of a Mafia family decides to cooperate with law enforcement and become an informant, the Mafia will do anything and everything to kill him. You cross the lines at your mortal peril.

For the Permanent Political Class, by contrast, line-crossing is an art form. The name of the game is to make money and to extract it from the private sector, but you can do that from both sides of the public-private divide. You don’t have to be a member of Congress — you can be a lobbyist or a lawyer. Better yet, you can pass back and forth between political office and this private-public actor of Washington, always working to extract wealth from various industries that fear the laws and regulations you help create.

In 2010 Congress passed, and President Obama signed, the Dodd-Frank Wall Street Reform and Consumer Protection Act. It was allegedly designed to provide new safeguards for financial markets by further regulating investment banks and other financial market participants. The trouble? No one can actually understand it. As one banker, publicly supportive of the law, told The Economist , when asked about the “Volcker Rule,” a centerpiece of Dodd-Frank, the rule is “unintelligible any way you read it.” Sheila Bair, the former head of the Federal Deposit Insurance Corporation (FDIC), has called the Volcker Rule “extraordinarily complex” and says, “Regulators should think hard about starting over again with a simple rule.”

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But that won’t happen for one simple reason: Dodd-Frank was designed to be indecipherable by mere mortals. For the Permanent Political Class, the regulatory minefield creates a lucrative opportunity for extortion.

Part of the problem is the law’s massive size. At 2,319 pages, it is dramatically larger than previous financial reform laws and approaches the monstrous length of the Obamacare bill. By comparison, the Federal Reserve Act of 1913, which established the Federal Reserve banking system and the single national currency, was 31 pages long. The Glass-Steagall Banking Act of 1933, which overhauled the entire banking system in light of hundreds of bank failures, was 37 pages long.

Dodd-Frank is also remarkably complex. Even seemingly basic principles are expanded and twisted to make compliance with them nearly impossible. For example, the so-called Volcker Rule, which grew out of a three-page memo from former Fed chairman Paul Volcker to President Obama in 2009, morphed into a 298-page description with 383 questions that break down into 1,420 subquestions.

The cost of filling out the complex paperwork is enormous. The forms required by sections 404 and 406 of the law (which require the collection of systemic risk data from private funds, including hedge funds) will cost hedge funds approximately $100,000 to $150,000 to complete the first time, and then $40,000 a year after.

The law was written to create more rules. As Jonathan Macey of the Yale Law School puts it, “Laws classically provide people with rules. Dodd-Frank is not directed at people. It is an outline directed at bureaucrats and it instructs them to make still more regulations and to create more bureaucracies.” For example, the law requires 243 rules and sixty-seven studies by eleven different agencies. The law also requires the creation of multiple new government entities, including the Financial Stability Oversight Council (FSOC) and the Consumer Financial Protection Bureau (CFPB).