JEROEN DIJSSELBLOEM’S COMMENTS ON CYPRUS: “THE DUTCHMAN’S NOT THE KIND OF MAN WHO KEEPS HIS THUMB JAMMED IN THE DAM THE WHOLE DAY THROUGH”

3/27/13

The new and youthful Dutch Finance Minister, Jeroen Dijsselbloem, who is also president of the Eurogroup of eurozone finance ministers, apparently has not spent enough time around the club he recently joined.  Why else would he enrage estimables in the European Central Bank, in the continent’s financial capitals, and even at home among the normally plain spoken Dutch, with his crazy assertions that the investors in an enterprise should actually bear the brunt of the risk of that enterprise’s failure?

Mr. Dijsselbloem had the temerity to suggest that shareholders, bondholders, and uninsured depositors should actually (egad!) take losses when banks fail, as was the case in Cyprus.  While he was careful, perhaps too careful, to say that Cyprus is “no blueprint” for future bank bailouts, he did say that the Cyprus bailout “fit into the new approach toward bank rescues that is gradually evolving.”  (See my posts on the Cyprus situation, 3/20/13’s CYPRUS AND THE “RIDDLE, WRAPPED IN A MYSTERY, INSIDE AN ENIGMA” and 3/18/13’s THE CYPRUS DEPOSIT “TAX”:  “DON’T CRY FOR ME (NICOSIA)!”  Note that the plan Mr. Dijsselbloem speaks rather highly of bears little resemblance to the disastrous plan on which I commented on 3/18.)   For making this outrageous statement, Mr. Dijsselbloem is being castigated for “causing unrest” and “creating uncertainty.”   No one mentioned “sticking up for taxpayers” or “averting moral hazard.”   But such considerations apparently have no part in the calculus of new age finance.

That Mr. Dijsselbloem is being vilified throughout Europe (and doubtless from some quarters over here) for stating that those who take risk should be expected to bear risk shows how goofy modern day, new age finance has become.  The treatment he is receiving also indicates why the world got into so much financial trouble a few years ago and why we are doomed to encounter more such trouble…unless we stop listening to the world’s financial Merlins and regain some measure of common sense.

REDFLEX’S EXCELLENT CHICAGO ADVENTURE: EDDY BURKE ENTER(ED) THE FRAY

3/26/13

According to yesterday’s Chicago Tribune, which has been at least as dogged on the Redflex story as yours truly (See my 3/17/13 post, REDFLEX’S EXCELLENT CHICAGO ADVENTURE:  THE STORY THAT KEEPS ON GIVING, PART ????, only my latest in a series.), suspicions about the chicanery surrounding Redflex’s red light camera contract with the city of Chicago go back to at least 2007.

Even six years ago, people knew something wasn’t right about the contract and suspected favoritism was being shown to Redflex and now, of course, we know why.   Allegedly, Mr. John Bills, a purchasing manager in the city’s Transportation Department and, probably not coincidentally, a precinct captain in House Speaker Mike Madigan’s 13^th ward Regular Democratic Organization, was on the take from Redflex.   Further, as I noted in my 3/17/13 post, Mr. Bills remained indirectly on Redflex’s pad, after leaving his job with the city, through a Redflex funded non-profit called the Traffic Safety Coalition, which was run by one Greg Goldner, a big fundraiser for and long time friend of Mayor Rahm Emanuel.

Back in 2007, one of Redflex’s major competitors for the camera contract, American Traffic Solutions (“ATS”), suspected that the scales were tipped in Redflex’s favor.  Following a proud Chicago tradition,  ATS went to an alderman, in this case, uber-alderman Ed Burke of the 14^th Ward.   (As far as we know, nobody at ATS of any note lives in the 14^th Ward, which demonstrates how things have changed in Chicago politics, but that is grist for another mill.)   ATS, as it turns out, already had plenty of clout with the city and with Mr. Burke.   One of ATS’s major subcontractors, Quantum Crossings, LLC, has as the chairman of its advisory board Mr. Tom Donovan, whose name is known to anyone who has been familiar with Chicago politics for more than the last few months or so.    Mr. Tom Donovan was once patronage chief for the real Mayor Daley (Richard J., or Richard I) and the Mayor’s immediate successor, Mike Bilandic, otherwise known as Bilandic the Bland, since we are handing out monikers to former mayors.   Mr. Donovan went on to head the Chicago Board of Trade.   While his clout certainly had something to do with his obtaining that job, it’s quite clear that Mr. Donovan was surely one of Richard I’s very bright young men.  But I digress.  Not surprisingly, Mr. Donovan and Mr. Burke have been friends for decades.

Responding to ATS’s pleas, and, doubtless, to Mr. Donovan’s presence in the ATS bidding group, Mr. Burke initiated a bout of combat by mail with the Daley Administration, and, specifically, City Corporation Counsel Mara Georges and CFO Paul Volpe, over the Redflex contract and the shenanigans surrounding it.   As Chairman of the City Council Finance Committee, Mr. Burke threatened to hold hearings about the contract in the City Council.  Supposedly, the Daley Administration relented in July, 2007 and opened the contract to competitive bidding.   Burke never held a hearing in the City Council and the whole thing died.  Redflex wound up with the exclusive contract for red light cameras in the city of Chicago.  Now that the whole issue has blown up in Redflex’s, and, apparently, Mr. Bills’, face, Mr. Burke is interested again and is holding hearings.

A few thoughts…

First, this looks like a case of one clout firm getting upset that its clout was apparently transcended by another clout firm.   ATS, one suspects, was not upset that the scales were tipped; it was upset that the scales weren’t tipped in ATS’s favor.   Of course, no one can say that definitively at this point, but ATS’s hiring of Mr. Donovan’s firm as a subcontractor and its going to Mr. Burke, the king of clout at the time, when it had a problem indicate that ATS knew its way around the block in Chicago.   And one suspects that the powers that be, and maybe even Ed Burke, were asking each other “Who’s (Redflex’s) clout?  How can it be better than our clout?”  

Again, ATS may be entirely on the up and up here, and is almost certainly on the level legally, but being around the politics of this town for a long time makes one cynical.  As Chicago political legend Ed Vrdolyak put it a few years ago “Hey, not even fishing is on the square.”

Second, as the Tribune put it, questions regarding Redflex center on whether a mid-level bureaucrat like John Bills “had the juice to single-handedly steer a $100mm contract.”   No one thinks so.  That, as I have indicated in my many posts on this issue, is the crux of the case.   John Bills didn’t make this decision.  Someone else did.  And the entire $2mm (The number keeps growing, as does the depth of the reported relationship between Mr. O’Malley and Mr. Bills.) paid to Marty O’Malley, another 13^th Ward denizen, for “consulting, didn’t wind up in Mr. O’Malley’s pocket…or in Mr. Bills’ pocket.   Where did the money go?   Who made the decision to hire Redflex over the objections of another qualified firm with plenty of its own clout?

I don’t know whether I hate or love this story, but I do know it only gets more interesting…and will continue to do so.

See my two books, The Chairman, A Novel of Big City Politics and The Chairman’s Challenge, A Continuing Novel of Big City Politics, for further illumination on how things work in Chicago and Illinois politics. 

COMMISSIONER BILL BEAVERS: HOG WITH THE BIG NUTS, REAL LIFE FRANK PANTANGELI, OR BOTH?

3/22/13

Former 7^th Ward Alderman and current County Commissioner Bill Beavers was convicted yesterday on several counts of tax fraud.   Loyal readers know that I have written on Mr. Beavers several times in the past (My latest discourse on Bill Beavers,  JESSE JACKSON, JR. RESIGNS:  DON’T LET THE DOOR HIT YOU IN THE KEISTER ON THE WAY OUT, which was written for the now defunct Rant Political, was reproduced on my 2/7/13 post, JUST HOW DID SANDI JACKSON END UP UNDER THAT BUS?...and is reproduced at the end of this post for your reading enjoyment and convenience.) and that I have a degree of admiration, or at least respect, for the man.   As something of a Bill Beavers fan, and a long time commentator on Chicago politics, I would be remiss if I weren’t to write something in the wake of Mr. Beavers’ conviction.  So, in declining order of importance, are several things worth considering about Mr. Beavers and his conviction.

First, there is no excuse for corruption of any kind.   We tend to minimize, and sometimes revel in, corruption in Chicago and its environs, or at least we used to before it got so ridiculously expensive.   Our basking in our hair shirt reputation is one of the reasons that our city and state have been so corrupt for so long, as I explain in the early chapters of my first novel, The Chairman, A Novel of Big City Politics.   So I am by no means exonerating the behavior of Mr. Beavers.

That having been said, I have long contended, and continue to contend, that an old-fashioned (I would say “old school” if I weren’t so averse to now hackneyed expressions.) pol on the take is far less dangerous than a high-minded professed reformer with a messianic complex.   Even a guy like Bill Beavers, who has, according to his conviction, made off with anywhere from $30,0000 to several hundred thousand dollars, depending on whom you believe, is small potatoes when compared to someone who is certain s/he is right and who has access to the billions upon billions government can conjure up to induce people to behave in accordance with its conception of the good of humanity.  Even the rare politician who has never taken a dime for himself can cost society far more dearly than the most corrupt pol when that ostensible Mr. Clean is determined he knows what is good for us.

Second, Mr. Beavers continues to insist that the federal case was brought because he refused to wear a wire on Cook County Commissioner John Daley.  As Mr. Beavers put it,

“They thought I was a punk.”

but

“I’m not a stool pigeon, never will be.”

Mr. Beavers argues that “even Ray Charles could see” that it was the desire to get Mr. Daley that led the feds to try to squeeze the hog, perhaps by its big nuts.   And he’s right.   There are very, very few people who believe that Mr. Beaver was NOT pursued as part of a bigger plan, probably against John Daley.   John Daley is the only person publicly denying this, and one wonders whether he is just whistling past the graveyard.

The feds found out that Mr. Beavers is not a “punk” or a “stool pigeon;” instead, he is a stand-up guy and is one bad hombre, as we used to say before something very crude was substituted for hombre in that expression.    Such a trait can be regarded as honorable or reprehensible, but there is a larger question here:  will the next guy the feds go after be so tough?   Will the next guy, perhaps after seeing the now 78 year old Mr. Beavers going away for an especially meaningful stretch, given his age, be willing to go away rather than give the feds something on their larger target(s), whomever those targets might be?

Third, part of the image I have of Mr. Beavers has been nearly completely destroyed.  It wasn’t the indictment or conviction that wreaked so much havoc on that image.  I, and most people, were not surprised that Mr. Beavers was not squeaky clean.  We knew he didn’t enter politics for the good of humanity or some such drivel; Mr. Beavers, as George Washington Plunkett once said, saw his opportunities and he took ‘em.   No, what hurts Mr. Beavers’ image in at least my eyes was that he blew whatever money he blew playing slots.  Slots?   I can’t imagine tough guy Bill Beavers, despite his advanced age, playing slots with the little old ladies who come to the casino on the bus.   I always thought he’d fit in better at the craps, roulette, or blackjack table.   Tough guys, big shooters, don’t play slots, do they?     

See my two books, The Chairman, A Novel of Big City Politics and The Chairman’s Challenge, A Continuing Novel of Big City Politics, for further illumination on how things work in Chicago and Illinois politics. 

PROMISED REPRODUCED POST:

COMMISSIONER BILL BEAVERS ON ALDERMAN SANDI JACKSON:  DIOGENES, PUT DOWN YOUR LANTERN

1/13/13

Chicagoans, and Illinoisans in general, are far too tolerant of corruption in our politicians.  We continually complain about our high and increasing taxes, our so-so level of services, the crime in our streets, and the enormous public pension and health care liabilities that will soon make our state financially uninhabitable.   But we continue to elect the same scalawags, rogues, or worse.

On the other hand…

It has long been my contention that a corrupt local pol looking to put some ill-gotten dough in his pocket is far less dangerous than a national pol, or even a local pol with a national reputation and ambitions, who comes to his job with a messianic complex and the unwavering certainty that s/he knows what is good for “the people,” despite his or her never having had a real job.   Further, at least our corrupt local pols provide plenty of entertainment value and provide us with much of the swagger that we feel is our inherent right as Chicagoans.   As we like to say when someone speaks of the latest manifestation of corruption,  “Hey, this ain’t Minneapolis.”  The problem of late, is that the price of this corruption has been exceeding its entertainment value, and the taxpayers are justifiably displaying some at least rhetorical opposition.  But I digress.

As loyal readers know, I’ve so far written novels about the politics of my hometown, The Chairman and its sequel, The Chairman’s Challenge.   While these books are widely read and enjoyed even by people who have no special affinity for politics, let alone Chicago politics, because of the searing insight they provide into the human condition and their often page turning plot lines, those who have some knowledge of the politics of this most American of cities enjoy trying to determine who the characters are in “real life.”   On more than one occasion, I have been asked if the fictional Alderman Isaiah Parker is indeed Cook County Commissioner and former 7^th Ward Alderman, Bill Beavers.  The answer, of course, is no; Isaiah Parker is a lot of people, as are all the characters in my book.  But it would be hard to make up a character more colorful, or more reflective of Chicago politics, than Bill Beavers.

I met Commissioner Beavers, a large, imposing man who refers to himself as “the hog with the big nuts,” maybe twenty years ago, when he was 7^th Ward alderman.   He was appearing before a small group of Chicago civic leaders to discuss, among other things, the gang crime problem at the time that, in the retrospective light of today’s problems in that area, seems akin to a jaywalking problem in the city.   Then Alderman Beavers, who was a Chicago police officer earlier in life, displayed an amazingly intricate degree of knowledge, down to the street corners over which various factions of gangs presided in and around his 7^th Ward, of the problem and had plenty of ideas on how to address it.   He was one of the most impressive of the many politicians yours truly has ever met.

On the other hand, Bill Beavers has never been very shy about turning public office, and political power, into cash.   Such a propensity has finally landed the Commissioner in serious trouble; he is currently under federal indictment for misuse of campaign funds and related tax evasion.   The 77 year old Mr. Beavers contends that he is guilty of only honest bookkeeping mistakes and that the feds brought the charges only to pressure him to wear a wire on fellow Cook County Commissioner, County Finance Committee Chairman, and 11^th Ward Democratic Committeeman John Daley.    When he refused to give them what they wanted, Beavers contends, the U.S. Attorney’s people indicted him.   Mr. Beaver’s most succinct comment on the indictment is that it’s “horses—t that I’m not worried about.”   He went on to call Patrick Fitzgerald, the U.S. Attorney whose office indicted him, a “rooster with no nuts.”

It is this degree of willingness to speak his mind where lesser men flee for cover that, in perhaps a strange way, endears Bill Beavers to people, including yours truly.   Such honesty and fearlessness has surfaced most recently in the wake of the resignation of 7^th Ward Alderman Sandi Jackson, who claims that her abandonment of her office arises out of concern for her ailing husband, former Congressman Jesse Jackson, Jr., who contracted his mysterious malady about the time the federal government started sniffing around his many apparent ethical lapses, including his role in trying to buy the Senate seat once held by President Obama.   (See my 11/11/12 post, JESSE JACKSON, JR. RESIGNS:  DON’T LET THE DOOR HIT YOU IN THE KEISTER ON THE WAY OUT)   While not yet facing heat on those matters, he is under federal investigation for misuse of campaign funds.   One of the many areas of federal interest just happens to be the hundreds of thousands of campaign dollars paid to a firm controlled by, you guessed it, Sandi Jackson, for consulting services.  Another area is the thousands of dollars he spent on gifts for female “friends.”

So while in the wake of Alderman Jackson’s resignation, the Chicago media, which can’t seem to decide whether it swoons more energetically for Mayor Rahm Emanuel (See my 12/28/12 piece, RAHM EMANUEL:  MAYOR FOR LIFE…OR UNTIL HE BECOMES PRESIDENT) or Alderman Sandi Jackson, swallows whole such drivel from Alderman Jackson as

“I am unapologetically a wife and a mother and I cannot deny my commitment to those most important personal responsibilities,"

and such a reputed straight talking tough guy as Mayor Emanuel utters such fluff as

“As Sandi takes this time to focus on her family, we give her our deepest thanks and support for her service to our city and the residents of her ward.  Her leadership has been greatly appreciated in the Chicago City Council,”

Commissioner Beavers tells the truth about Sandi Jackson:

“She was a ghost alderman.   She was never here.   She always lived in Washington.  People come in my office to find out where she’s located.  I have pre-printed information with her office address and phone number.   They’re coming to me for aldermanic issues that I don’t handle because they can’t find her.”

“She wasn’t very effective because she was never there.  She never attended any meetings and, when she came to a meeting, she left right away.  I don’t feel sorry for her.  I’ve got my own problems.   I think she’s gonna be part of it and Jesse Jr. is cutting a deal to save her.”  (Emphasis mine)

Some will argue that Commissioner Beavers has an axe to grind, and he does.   He was 7^th Ward Alderman until he left to run for the County Board to watch over young Todd Stroger, who surely needed, but clearly refused, Mr. Beavers’ help.   When Bill Beavers left his aldermanic post, he installed his daughter, Darcel, in that office.   Darcel Beavers lost that job to Sandi Jackson in 2007 on the strength of the name of the family into which Sandi Jackson married.   So, yes, Mr. Beavers has reason to dislike Sandi Jackson, but can anyone deny the truth, or the honesty, of his contentions?  As Jackie Hudson, a lifelong resident of the 7^th Ward and a constituent of both Sandi Jackson and Bill Beavers, said of Mrs. Jackson’s resignation

“It’s a good thing.  She doesn’t do anything over here.  She was just riding her husband’s coattails.”

Another constituent, Dianna Mott, added

“I’m in total shock, and I’m looking for some answers.  I want to know the real motivation behind her leaving.  We understand what’s happening to you (Alderman Jackson) and your family, but where does that leave us?   What happens to the ward?”

While the local media mavens want to make us believe that poor, put-upon Sandi Jackson ought to be pitied for enduring so much and our supposedly tough guy Mayor utters inane praise of an absentee alderman for fear of alienating some imagined constituency concocted in his north side yuppie head, south side old school pol Bill Beavers tells it like it is…and doesn’t give a damn what people think about it.

Hog with big nuts indeed.   Bill Beavers is indeed the last of a breed and I, for one, will miss his like when he is gone.

CYPRUS AND THE “RIDDLE, WRAPPED IN A MYSTERY, INSIDE AN ENIGMA”

3/20/13

My already seminal 3/18/13 piece, THE CYPRUS DEPOSIT “TAX”:  “DON’T CRY FOR ME (NICOSIA)!” covered my larger thoughts on the situation in Cyprus.   But the situation is rapidly evolving and new thoughts spring up more quickly than revisions and rejections of proposals for salvaging the balmy money laundromat in the eastern Mediterranean.

The key to saving Cyprus may be Russia, the citizens of which have about $30 billion deposited in Cypriot banks, or about one third of all bank deposits in Cyprus.  Russia could easily bail out tiny Cyprus, the economy of which is about one quarter of the size of all bank deposits there and a tiny fraction of the GDP of Russia.   Russia could easily extend and increase its current 2.5 billion euro bailout loan to Cyprus and thus save the day, probably in return for some financial, but also some largely geopolitical, concessions from Cyprus.  The question is whether Russia has the will to bail out Cyprus.  That question centers around whether Russia wants to bail out the gangsters and other felonious finaglers who have money deposited in Cyprus.  

One school of thought contends that the Russian government surely doesn’t want to save people who have put their money in Cyprus to avoid Russian taxes.   While that would make sense on its face, Russian politics is perhaps murkier now than it was back in the ‘30s when Churchill said that Russia was “a riddle, wrapped in a mystery, inside an enigma.”  We can’t assume that the Putin government, despite its bravado, is on some crusade to destroy the oligarchs and the thugs who control much of its wealth; indeed, sometime the oligarchs, thugs, and politicians in Russia are indistinguishable.   As one who has spent most of his life in and around Chicago, which has long had a similar system of government, one could easily see at least elements of the Putin government using public resources to rescue its friends who live and prosper in the shadows.

It’s already quite clear that the powers that be in Cyprus are quite concerned with mollifying the dirty money that has made that island off the underbelly of Turkey something of a world financial center.   Note that the plan to tax deposits greater than 200,000 euros as the onerous rate of 15%, the plan on the table when I wrote my 3/18 piece, was quickly scrapped in favor of a plan that would keep that rate at 9.9%, thus skewing more of the burden away from the dirty money and toward the average Cypriot saver.   And one does not have to be as cynical as your truly to think that yesterday’s parliamentary rejection of the whole deposit tax scheme did not bear the fingerprints of the “international investors” who doubtless have some pull in the Cypriot parliament. 

We already know the Cypriots, understandably, have some interest in protecting the dirty money that has made their country the Mediterranean’s foremost money laundromat, a status that has mightily contributed to whatever prosperity the island enjoys.  The question is whether the Putin government has an interest in protecting its citizens who use Cyprus to avoid Russian taxes.   Don’t assume it doesn’t.

THE CYPRUS DEPOSIT “TAX”: “DON’T CRY FOR ME (NICOSIA)!”

3/18/13

Cyprus’s looming decision to effectively confiscate part of every bank account in the country as a means of partially financing a bailout of the Cypriot banking system is the big financial news story today, and deservedly so.  Whether I can say anything spectacularly original about the story I don’t know, but perhaps I can add some fresh insight.

Like legions of others, I am appalled that, should this proposal pass (As of this writing, the vote in the Cypriot parliament has been postponed until Tuesday and the banks will remain closed until Thursday.), the new law will run roughshod over centuries of corporate law and established business practice.   While the senior debt of the banks will remain unscathed, depositors, who are at least pari passu (equal in terms of liquidation payouts…not a literal Latin translation) with and probably at least structurally senior to the senior debt, will take hits ranging from, at this writing, 3% to 15% depending on how much money they have in the bank.  Deposit insurance will make no difference; as of this writing, insured and uninsured depositors will pay the same “tax.” This defies both law and practice and certainly rattles the confidence not only of insured depositors but also of investors.  The ramifications for the reliability of deposit insurance are obvious.  In addition, bondholders and potential bondholders, and not only in Cyprus or even only in Europe, have to be asking something like “If the government can override law and established practice to benefit me, why can’t it do the same thing to hurt me?”   This does not create an environment that is conducive to prudent risk taking.  

On the other hand, one might easily, and justifiably, retort that the bondholders’ rights were ignored in the bankruptcies of General Motors and Chrysler.   Many of us bemoaned the abuse of the law in those cases and predicted dire consequences for the bond markets and the investment environment in general.   So far, though, we have seen no effects.  It’s as if no one cares.   But remember that people, and especially the current generation of financial, political, media, and business leaders, have a hard time dealing with the long run.   Their sense of history is lacking and their memories, and attention spans, are short.

Sure, there are extenuating circumstances here.   Cypriot banks are unusually heavily funded by deposits, so there aren’t many senior bondholders to go after.   (But there are plenty of uninsured deposits; uninsured deposits exceed insured deposits in the Cypriot banking system and, as the Wall Street Journal pointed out in today’s (Monday, 3/18’s) editorial on the subject, it looks like relatively modest “tax” on uninsured deposits could raise the 6 billion or so euros expected of depositors in the bailout deal.)   Cypriot banks are havens for money laundering and other nefarious financial finagling, and any deposit tax will thus hit, say, Russian gangsters much harder than the Cypriot in the street.  And, after all, Cyprus is too small to set much of a precedent. There were also extenuating circumstances in the GM and Chrysler bailouts, though.   But the law is the law and is not to be brushed aside due to extenuating circumstances.   Politicians, and others who would like to take your money, can always come up with extenuating circumstances.

There are many who are assuring us that there will be no runs on European banks because the European Central Bank (“ECB”) has at its disposal an assortment of tools, including its aggressive use of Long Term Refinancing Operations (“LTROs”) to keep the banks solvent and/or liquid.  But such mechanisms would be useful in this situation only in an indirect way, if at all.   In this case, a run would not have its genesis in a fear that depositors’ money will disappear; a run would emerge from the fear that a portion of seemingly insured deposits will be seized in the form a one time deposit “tax,” as in Cyprus.   Instead of “I’d better get my money out before it’s all gone,” the fear would be “I’d better get my money out before the government takes (some) percent of it.”   The motivation would be different, but the result would be the same.  At that point, such mechanisms as the LTROs would be brought in to stem the chaos, but the chaos would have wrought its damage, and possibly would continue.

U.S. markets don’t seem to much care about Cyprus; they closed today (Monday, 3/18/13),the first trading day after news of the planned deposit tax leaked, down only modestly after a tougher night in Asia and a wild ride here.  But, again, memories and attention spans are short among the people who seem to matter in today’s world, as is the sense of history of those same people to whom we, perhaps foolishly, entrust so much.

THE “NEW FEDERALISM”: SEND THE BILL TO THAT GENTLEMAN IN THE HINTERLANDS…AND MAKE SURE YOU GET A GOOD PICTURE, OKAY?

3/18/13

In one of yesterday’s already seminal posts on the poltroonish posturing at CPAC (CPAC:  CAN’T PLACATE A (GENUINE) CONSERVATIVE), I pointed out that the Republicans were at least as vague as the Democrats in the spending cuts they were proposing.   This is entirely understandable; both parties are composed of professional politicians who decided at an early age to “go into politics” and quake in fear at the very notion of having to get a real job.  Pointing out whose ox is getting gored is far more dangerous than braying against “government spending” and counting on the audience’s assuming that what you mean is “government spending on someone else,” but I digress. 

Before making the point about the meaninglessness of vague proposals to cut spending, I wrote

The “conservatives” propose lower taxes at the federal level, which is great, though it doesn’t address the real problem, grist for a later, but hopefully not much later, mill.

That later mill has arrived.  

One of the reasons yours truly got interested in politics was that, as an overly precocious youth, I was concerned that government had gotten too large and intrusive and that taxes were too high, sapping the vitality of the private sector and the human spirit.  Continuing on this path would eventually lead to a dyspeptic nanny state in which people’s creative spirits and urge for fulfillment, as they defined it, would be replaced by a servile dependence on an omnipotent government that would dispense largesse on those it arbitrarily deemed worthy.  So I am the last person who would argue that taxes are too low.   (I should have gotten interested in politics for the opportunities doing so would have provided for personal financial advancement, like so many guys in my old neighborhood, but I, as it turns out, was not nearly as smart as most of my neighbors, but I again digress, but at least I do so parenthetically.) 

That having been said, taxes at the FEDERAL level are not all that onerous.  In the fiscal year that ended 9/30/12, federal revenues, spending, and resultant deficit were as follows:

	Pct GDP	Dollars, trillions
Revenue	15.7%	$2.44
Spending	22.7%	$3.53
Deficit	7.0%	$1.09

Federal spending was higher than its recent (last twenty years or so) historic norm of 18% to 20% of GDP and should be brought down.   Good luck with that, but I digress again.   However, as much as it pains me to say it, tax revenues were far lower than their historic norm of 18% to 19% of GDP.   These numbers will change for the current fiscal year (FY 2013); spending will be slightly lower and taxes will be slightly higher as percentages of GDP, and hence we are projected to see our first sub-trillion dollar deficit since FY 2008.   But the numbers will not be all that different from FY 2012.  There are a lot of reasons that transcend tax rates or loopholes that federal revenues as a percent of GDP are so low, and the still slow economy is one of them, but there is no arguing that federal revenues as a percent of GDP are at or near recent historic lows.

None of you, I am sure, feel undertaxed, and you are correct.   But most of the growth in the tax burden and, for most people, most of the tax burden, is not at the federal level.   Most of what we complain about in this regard is state and local taxes…state income taxes, sales taxes, gasoline taxes, property taxes, etc.   Perhaps my perspective is distorted by living in Illinois, where our state income tax was increased by 60% recently, but just about every area of the country has seen increases in state and/or local taxes.

So what do the Republicans propose?   To the extent they get at all specific about cutting spending, one of their favorite means of cutting spending is “returning programs to the states.”   For example, one of the key planks of Representative Paul Ryan’s plan to get federal health care spending under control is to transfer more, or all, responsibility for Medicaid to the states.   (See my 3/13/13 piece, ADDRESSING THE PROBLEMS OF MEDICARE:  MR. RYAN STAYS IN WASHINGTON.)   For the most part, this is a good idea; if services must be provided by government, it is best to have those services provided by the level of government closest to the voters and taxpayers, which is state or local governments, at least in theory.   And it’s good to think that someone considers the states as more than arms of the federal government, which seems to have been the growing popular notion for the last hundred years or so.

The problem arises, as most problems do, with the money.  A block grant from Washington is usually involved in such plans to delegate responsibility for programs to states, but much of the inspiration for such delegation comes from the desire to save the federal government money.  So, almost by design, the block grant will not cover all the spending the states must undertake.  The GOP, in proposing such “new federalism” touts the managerial skills of the nation’s governors, and they are right, at least in relative terms.  Governors are generally much better managers than presidents and some are truly outstanding.  State legislatures are generally more competent and reasonable than Congress.   But the bar in both cases is so low that it has burrowed itself deep within the earth.  The state guys are politicians, and thus are by nature very limited and ordinary, at best, human beings.   They are not modern day Rumpelstiltskins who can spin gold out of straw.   In most cases, delegating responsibility for programs to the states will involve the already strapped states’ having to generate more revenue to fund those programs.  So state and local taxes will have to go up.

The urge to “cut spending” by dumping it in the states’ laps, one of the few substantive ideas for cutting spending coming out of the GOP (which, incidentally, is a few more than have come out of the other side of the aisle), does not really cut spending by more than the negligible amounts that can be derived from better management at the state level.  It merely relocates the spending.  That might be good; it might not.   Those of us who live in Illinois, for example, might feel more comfortable handing over our hard earned spondulicks to the foppish rapscallions in Washington than to the outright criminals in Springfield.   But the “new federalism” will only result in increased state and local taxes, which are already too high and growing too quickly.  

Spending restraint at the federal level, should it ever become more than a pipe dream, would be welcome, largely because it might, and only might, permit some tax relief at the federal level.  But federal taxes, on a relative basis, are already not all that onerous.  If the only substantive plan to reduce them involves increasing already onerous, and getting more so, state and local taxes, what, at least from a financial perspective, is the point?

REDFLEX’S EXCELLENT CHICAGO ADVENTURE: THE STORY THAT KEEPS ON GIVING, PART ????

3/17/13

Regular readers know that I have been on the mysterious case of Redflex Traffic Systems, Inc., its Australian parent, Redflex Holdings, and Redflex’s very lucrative ($300 million and counting) red light camera contract with the city of Chicago.  (My first comments on this story, 10/28/12’s REDFLEX TRAFFIC SYSTEMS AND CHICAGO POLITICS:   TRUTH NEARLY AS INTRIGUING AS FICTION is appended to this post, but also see my latest post, 3/2/13’s REDFLEX’S EXCELLENT CHICAGO ADVENTURE:  THE STORY THAT KEEPS ON GIVING.)

The latest news is that the Feds are now interested in the case, having delivered a subpoena to Mr. John Bills, the city official nominally in charge of the red light camera contract, who at least one Redflex initiated probe has said was on the take from Redflex.   Both Mr. Bills and Mr. Marty O’Malley, a “consultant” who has been paid $570,000 in “commissions” by Redflex but whose main role, according to the aforementioned Redflex probe, was to serve as a conduit for bribes to Mr. Bills, are fixtures in Mike Madigan’s 13^th Ward Regular Democratic Organization.  Curiously, Messrs. Bills and O’Malley denied knowing each other when the Chicago Tribune initially brought up questions concerning Redflex but now admit they are friends.  If you’ve been reading my comments, you’ve suspected the latter all along, but I digress.

The federal probe will indeed be interesting and one wonders whether it will ultimately involve, one way or another, a Mr. Greg Goldner.   Mr. Goldner managed now Mayor Rahm Emanuel’s 2002 initial run for Congress and has remained close to Mr. Emanuel ever since.   The two men share an ability to generate brobdingnagian amounts of money for campaigns.   It also seems that they share a propensity to do business with Redflex.

Mr. Goldner heads, or at least at one time headed, something called the “Traffic Safety Coalition,” a Redflex funded organization that lobbies for, you guessed it, legalization of speed cameras, which Redflex also sells, in Illinois.   There is no, or at least little, doubt that Mr. Goldner is a talented guy, but one suspects that his closeness to Mr. Emanuel didn’t hurt his ability to get this plum of a “private sector” post.   Also working on legalization of speed cameras is Michael Kasper, a lobbyist and lawyer who represented Washington resident Rahm Emanuel when Mr. Emanuel, desirous of the big office on the 5^th Floor of City Hall, was trying to convince us he lived in Chicago.   Mr. Kasper, however, was clearly and definitively working as Mr. Emanuel’s agent in the speed camera efforts.   Mr. Goldner denies knowing that Mr. Emanuel was interested in legalizing speed cameras until that interest was made public.  Okay, and, this being St. Patrick’s Day, I also believe in pots of gold at the end of the rainbow, but again I digress.

Interestingly, Mr. Goldner hired Mr. Bills at the Traffic Safety Coalition just after Mr. Bills left his job, under at least some fire, as the city official in charge of the Redflex red light camera project.   Why was Mr. Bills hired at the Traffic Safety Coalition?   At the time, the extent of the financial hanky-panky between Redflex and Mr. Bills was not known; the belief then was that the only transgression involved was a night or two at a nice hotel in Arizona which Redflex inadvertently picked up for Mr. Bills.   Could it be that Mr. Bills was hired so that he had a financial interest in keeping quiet about the extent of the arrangement between him, Redflex, and Mr. O’Malley?  

To his credit, Mr. Emanuel has stated that Redflex’s red light contract will not be renewed when it expires in June of this year and that Redflex will not be allowed to be allowed to bid on the city’s speed camera contract when it becomes available.   This looks like another instance when Mr. Emanuel has moved quickly on damage control and at least ostensibly cast aside personal relationships in doing so. 

But this is also clearly a case in which damage control is definitely expedient on perhaps any number of levels.

See my two books, The Chairman, A Novel of Big City Politics and The Chairman’s Challenge, A Continuing Novel of Big City Politics, for further illumination on how things work in Chicago and Illinois politics. 

PROMISED APPENDED POST:

REDFLEX TRAFFIC SYSTEMS AND CHICAGO POLITICS:   TRUTH NEARLY AS INTRIGUING AS FICTION

10/18/12

The City of Chicago has just scratched the surface in the malodorous dealings of Redflex Traffic Systems, Inc., which supplies the city with red light cameras.   Redflex has been barred from bidding on the city’s upcoming speed camera system after having paid a hotel bill for a city purchasing agent and covered up this indiscretion for two years. Redflex continues to be the vendor for red light cameras for at least the time being.  The background story of Redflex and its dealings with the powers that be in Chicago politics is, typically, murky but, er, interesting.

Redflex Traffic Systems was among several companies bidding for the red light camera contract in Chicago back in the early part of last decade; it won the contract in 2005.   The city official in charge of overseeing the contract was (Get this title; talk about bureaucracy!)  Managing Deputy Commissioner of the Department of Transportation John Bills.  John Bills was, and is, a substantial figure in Illinois House Speaker, Chairman of the Illinois Democratic Party, and Ward Committeeman Mike Madigan’s 13^th Ward Regular Democratic Organization, serving as a registrar, or the guy in who supervises collection of signatures on candidate petitions, for Mr. Madigan.   One supposes that Mr. Bills is also a precinct captain for Mr. Madigan, but I can’t verify that.   Mr. Bills also lives in St. Bede Parish on the southwest side, which is also Mike Madigan’s parish.  

Redflex just happened to hire as its “consultant” on the red light camera project one Marty O’Malley, who also lives in St. Bede.   Mr. O’Malley claims no affiliation with Mike Madigan’s organization, but admits to contributing $1,000 in 2007, $1,500 in 2009. and another $1,500 in 2010 to Madigan’s political operations.   These contributions were made possible largely by the commissions Mr. O’Malley earned on the red light camera sales, but more on that later.   Mr. O’Malley denies having known Mr. Bills, or Mr. Madigan, before he and Mr. Bills started working together on the camera project.   Mr. O’Malley’s not having known Mr. Bills is plausible, given their ages; Mr. O’Malley is 72, Mr. Bills is 51.   But, for those of you unfamiliar with the mores of the southwest side, one’s parish is a big thing; it often is the center of many of one’s activities, spiritual and otherwise.

As it turns out, Redflex won the contract and Mr. O’Malley, who denies that he used political clout or geographical proximity to either Mr. Bills or Mr. Madigan when interviewing for the consultant job, got a commission of $1,500 per camera, more, according to Mr. O’Malley, than he was expecting.  His total payday came to $570,000.   Some of that, as we learned above, made its way into Mike Madigan’s political coffers.  Mr. Bills denies playing any role in getting Redflex the contract; Mr. Madigan, as far as I know, has not been asked if he had any role in this deal.

There was a small fly in the ointment.  It seems that, according to Mr. Bills, he was in Arizona for a Cubs pre-season game (That a guy from St. Bede would have any interest in a Cub game makes this story suspicious on its face; perhaps Mr. Bills was going to root for the opposition, thus adhering to a proud south side tradition, but I digress.) and didn’t have a hotel reservation.  He called a Redflex executive (Redflex has offices in Phoenix.) to see if he could help out.  Redflex booked him a room in a luxury hotel and the bill somehow never found its way onto Mr. Bills’ credit card, which he didn’t notice for quite some time.   For this minor transgression, and for two yeas of covering it up, Redflex is banned from bidding on the speed camera contract.   Mr. Bills also retired from his Managing Deputy Commissioner of the Department of Transportation job last summer after 32 years of working for the city.  No one has said Mr. Bills' retirement and the Redflex problems are related, but who’s kidding whom?

And it gets better…

Since these shenanigans have taken place, Mr. Bills has been appointed by “reform” Cook County Board President Toni Preckwinkle to a position on the Cook County Employee Appeals Board.  This position is part time and pays part time ($35 grand a year), but includes health benefits.  The Appeals Board has long been known as a receptacle for hacks who have somehow run afoul of either the law or the vicissitudes of the voting booth.  Ms. Preckwinkle will not say whether Mike Madigan recommended Mr. Bills for the job.

So…

A minor figure in this drama loses his job for accepting $500 in accommodations from a city vendor.   The vendor keeps its current contract but can’t bid on a new one, though the city Inspector General is investigating the case. 

It looks like there is more to this story and that there are more important people involved than Messrs. Bills and O’Malley.   How likely is it that larger heads will role?   For a hint, take a look at my two novels of Chicago politics, The Chairman, A Novel of Big City Politics and The Chairman’s Challenge, A Continuing Novel of Big City Politics.

CPAC: CAN’T PLACATE A (GENUINE) CONSERVATIVE

3/17/13

The annual bleating of banalities known as the “Conservative” Political Action Conference (“CPAC”) has finally wound to a close.   So what is a genuine conservative to make of this parade of pabulum?

First, any “conservative” conference that eschews Chris Christie while embracing Sarah Palin is guilty of gross misrepresentation to those of us who believe in the sane and reasoned application of conservative principles to the challenges of government.  (See my 2/28/13 post CHRIS CHRISTIE AND CHUCK HAGEL NEED NOT APPLY.) Further, excluding the most popular conservative in the country while highlighting a national laughingstock, a walking, talking tribute to the rejection of reason and intelligence in favor of naked, unchecked emotion and gormless reaction shows why the “conservative” movement has effectively committed suicide in this country but is somehow convinced that it must dig an even deeper hole to bury its own sorry carcass.

Second, who in the world can spend an entire three days listening to political speeches?   The terms “substantive” and “political speech” have become inherently contradictory over the last, oh, fifty or so years after skating on thin ice together since the dawn of time.   And how can a “conservative,” who, at least in the past, by definition rejected the efficacy of political solutions in a free society and a free economy, eagerly seek salvation from…politicians and government?   Even yours truly, who admittedly spends far too much time thinking about politics and government, cannot listen to a politician, even a rare politician for whom I have a modicum of respect, expel hot air for more than, say, three minutes or so.  To sit there and listen to these carnival barkers for three days and to call one’s self a conservative should induce some soul-searching among those who attend such events.

Third, even when something even remotely substantive emanates from these gab-fests, it is inherently contradictory and hypocritical.   The “conservatives” propose lower taxes at the federal level, which is great, though it doesn’t address the real problem, grist for a later, but hopefully not much later, mill.   But then they fail to produce any substantive, realistic, or remotely workable, plan for reducing spending.  (See, inter alia, my 3/13/13 post, ADDRESSING THE PROBLEMS OF MEDICARE:  MR. RYAN STAYS IN WASHINGTON.)   And even if they should somehow achieve a miracle and actually cut some domestic spending, the War Party representatives of the CPAC crowd will find some way to blow such savings, and then some, on what they laughingly call “defense” but what is really international proboscis insertion into places where we are unwelcome and in which we have at best limited interests and even less business.  (See, inter alia, my 2/1/13 post JOHN McCAIN, CHUCK HAGEL, AND DEFERRING TO HISTORY.)

So, at best, the conservative call to cut taxes amounts to not paying our bills in favor of passing our expenses onto our children and grandchildren, which I never thought of as a conservative principle.  And, yes, the Laffer Curve works; I am one of its more ardent proponents.  But the Laffer Curve is an economic principle, not a miracle elixir; these deficits are too big to grow our way out of.

At the expense of being accused of further apostasy (Get in line.), it was the great conservative hero, Ronald Reagan, who told us that it was okay not to pay our bills, that deficits didn’t matter, that we could cut taxes and spend on the military and on entitlements ‘til our hearts were content and everything would be just fine.   Thus it was the Gipper and the genuine “conservatives” who followed him, some of us skeptically some more wholeheartedly and unabashedly, that set us on the path to the fiscal quagmire in which we are currently sinking.  Just look at a chart of debt to GDP since World War II if you don’t believe this.  

Fourth, what about the social agenda of the CPAC?   I, for one, agree with about 70% or 80% of the “conservative” social agenda.  I do differ with the growing “conservative” fixation with gays and have long suspected that it is a case of, as Shakespeare would say, “The lady doth protest too much, methinks.”   Do these guys perhaps some doubts about their own sexuality?  But I digress.  I also am alarmed that opposition to abortion has rather quickly morphed into a genuine uneasiness with, or outright hostility toward, contraception, which I find even more inherently contradictory than “conservatives” spending their weekends listening to lectures on how government can improve their lives.

Regardless, however, of where one stands on the social issues, if one is a conservative, one should be alarmed at the notion that the government should dictate conduct that does not infringe on the rights of others.  Yours truly is fine with the “conservative” social agenda when it amounts to opposition to the government playing for the other side but parts company when that agenda becomes advocacy for the government taking the field. 

The social issues are important cultural and moral issues, but are at best third rate political issues.  At least this conservative’s response to such discussion, regardless of which side is being advocated, amounts to “Why in the world are we talking about these things?”   Unfortunately, one gets the impression that many of the CPAC participants, and many who have highjacked the once noble tea party movement, are instead demanding that we waste even more time and effort on these sideshow political issues.

Finally, I was heartened to see that Rand Paul was the winner of a straw poll that asked CPAC participants whom they favored for president in 2016.  Though even thinking about the 2016 race at this juncture seems inherently not conservative, yours truly loves the horse race aspects of politics, especially since the stakes are all fool’s gold anyway; no politician, or at least no successful politician, is going to work to reduce the influence of government regardless of what s/he says.   Mr. Paul, perhaps seeing a real shot at the GOP nomination in 2016, is perhaps getting too cozy with the “limited government ends at the shore” approach of large swaths of the GOP, but his philosophy is in the right place.  Whether it is at all workable in a society that has grown very comfortable with big government is another issue.

The second place finish of Marco Rubio, though, is at least a little troubling.  Mr. Rubio seems to be fine fellow, and I was especially heartened that in his first speech as a senator-elect, he blasted George W. Bush (the man who gives LBJ perhaps decisive competition in the race for the not at all coveted title of “Worst President in U.S. History”) at least indirectly, as much as he went after the Democrats.  But I have the same problem with Senator Rubio that I have with Paul Ryan (See only my latest screed on Mr. Ryan, 3/13/13’s  ADDRESSING THE PROBLEMS OF MEDICARE:  MR. RYAN STAYS IN WASHINGTON), i.e., how can “conservatives” get so excited about a guy who has never been off the public payroll?  As I told a young friend last night, in a perhaps not all that rare instance of my not showing sufficient restraint in discussion of the issues of the day, “If he had ever done anything other than s--k off the public t-t, I’d kind of like the guy.”  In Mr. Rubio’s defense, sort of, he is too young to have accomplished, or learned, much in his life in any case.   (On the other hand, when I was his age, I, too, thought I knew a lot more than I did.)  The same criticisms can apply to the guy in the White House, but I thought conservatives had a different, better approach to government and a more reasoned attitude toward the worthiness of experience beyond the public sector.