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  February 2, 2017

Private Sector Will Make a Killing Off of Infrastructure Bank


Democrats and Republicans appear willing to offer public-private partnerships and tax credits to the benefit of Wall Street, says former financial regulator Bill Black
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biography

William K. Black, author of THE BEST WAY TO ROB A BANK IS TO OWN ONE, teaches economics and law at the University of Missouri Kansas City (UMKC). He was the Executive Director of the Institute for Fraud Prevention from 2005-2007. Black was a central figure in exposing Congressional corruption during the Savings and Loan Crisis.


transcript

Private Sector Will Make a Killing Off of Infrastructure BankSHARMINI PERIES: It's The Real News Network. I'm Sharmini Peries, coming to you from Baltimore.

With all the partisan politics on the hill these days dividing the nation, there's one thing that both sides of the aisle appear to agree on, and that is the private/public partnerships and the establishment of an infrastructure bank to replace the ailing infrastructure in the country that has been ignored for so long. Well, that should be a good thing, right? More speed rails, better airports, more windmills and solar panels. Well, let's have a look at what Trump said at his first press conference last week.

DONALD TRUMP: A directive to expedite permits for new infrastructure and new manufacturing plants, in order to immediately begin the border wall, and to crack down on sanctuary cities. They are not safe. We have to take care of that horrible situation.

SHARMINI PERIES: The very speculation of an infrastructure bank has been enough to drive up the stock prices on Wall Street.

On to talk about this, and much more with me, is Bill Black. Bill Black is the author of, "The Best Way to Rob a Bank is to Own One" He teaches economics and law at the University of Missouri, Kansas City. He was the Executive Director of the Institute for Fraud Prevention, from 2005 to 2007. Bill, so good to have you with us.

BILL BLACK: Thank you.

SHARINI PERIES: So Bill, let us start with what is being conceived as the infrastructure bank, what will it do? And there is this concept being developed in other countries as well. So, give us the whole gamut of where this came from. Why both sides of the aisle actually think this is a good idea?

BILL BLACK: So, this is a classic, "Be careful what you ask for, for you may receive it." So, lots of people want bi-partisan. A welcome to what it looks like when you look below the surface. So, this was an idea of Hillary Clinton. And because it was an idea of Hillary Clinton, of course, the candidate, Donald Trump, attacked it as the stupidest thing he'd ever heard of. Naturally President Trump is now talking about doing it. In fact, President-elect Trump almost immediately had his staff talking about doing this.

So, what is an infrastructure bank? Well, an infrastructure bank exists in a number of international entities. So, for example, the BRIC nations, that's folks like Brazil, Russia, India and China, have created a large bank that is largely designed to fund infrastructure programs in the poor nations. That would be, in this context, India and Russia and Brazil, to some extent as well.

And in that context it makes some degree of sense, although, the World Bank, which also has done this for decades, has a pretty poor track record, largely because of corruption, in making this work. But hey... but in the domestic sphere in the United States, it doesn't make any sense at all. And, therefore, you've got to figure out why are we doing all these things to do things that make no sense, in the U.S. context? And the answer, I know it will shock you, is it's really good for some number of very large corporations. And, in particular, it's really good for Wall Street. And what did Hillary Clinton and Donald Trump share? The love of big sections of Wall Street, and hence the bubble.

SHARMINI PERIES: And why is it good for Wall Street, because the infrastructure projects will be borrowing money from them?

BILL BLACK: So, we don't know terribly well, because, of course, none of these are well thought out ideas or much less explained ideas, what they're going to do exactly. But this is what they're spokespersons have been saying. First, the Republican side, this is all a way to get tax breaks, and I mean massive tax breaks, to corporations. So, if you come into this program, not only are they going to give you a loan, they're gonna give you a loan subsidized by us, as a giant corporation.

And they're going to create a, wait for it, again the thing that links the new Democrats and Republicans, the idea of privatizing everything. And so, the private sector partner is going to have some ownership interest and get funds, which means that infrastructure that's supposed to be public, will actually be private, mostly.

This also brings Wall Street in, because any time you do financing, Wall Street arranges the financing, and it gets enormous fees. And Wall Street loves public/private partnerships because it always loots the public pantry.

SHARMINI PERIES: Okay, let's imagine an example here, Bill. Let's say that we want speed rail between New York and Washington, how does this transpire?

BILL BLACK: So, they're talking about giving tax incentives in the over 60%, maybe even 80% range, of tax credits, to the private entity. Private entity then would get the right-of-way and permission from the government, maybe it would structure it, as Wall Street frequently does, that there's a reversion eventually, 20 to 30 years from now, to the public. But in the interim, the private sector gets to charge some special fees, or sometimes it's assessed as it were tax, but it flows to the private entity.

So, they're going to get a triple whammy of subsidies. They're going to get an ultra low interest rate, subsidized by us. Then they're going to get these tax credits subsidized by us. And then we're going to pay directly through various fees and such, to this private sector. And ask yourself why? Right? We don't need to borrow funds from the private sector, and we sure as heck, if we do need to borrow funds from the private sector, we don't need to give them tax credits. All we have to do is--

SHARMINI PERIES: Especially since we've been lending them money at zero percent for so long.

BILL BLACK: Yes. And nor do we have to pay them to get rich off of these tolls and such. So, it's utterly insane from a public policy perspective. The sharp guys in the room that are shearing the sheep, is always Wall Street and they're largest corporate clients. And the folks getting sheared, are always the public sector representatives, but of course, really, us. 'Cause they're the ones who are supposed to protect us and they have no idea what's being done to us in these things.

So, that's one area of insanity. The second area of insanity, is this idea that infrastructure is magic. Don't take it too much in either direction.

SHARMINI PERIES: I have a feeling what Donald Trump means by infrastructure and what, say, Chuck Schumer, on the Democratic side, means by infrastructure, might actually be two completely different things.

BILL BLACK: Yeah, but I bet you there's a fair degree of overlap. Chuck Schumer is New York and Wall Street, historically; he's been very friendly to Wall Street, not hostile, right. I agree of late, he's been saying things about embracing the progressive wing of the party, hope it happens, we'll see.

But regardless of whether it's a good infrastructure program, or a bad infrastructure program, and you're certainly right, we need to be intensely skeptical, always, but particularly with this administration, of the cronies and the conflicts of interest that are going to get all this triple sweetheart deal that I talked about. But on top of that they're selling this as magic. And Hillary and Paul Krugman, to some extent, sold this investment spending as if it were magic, right?

So, the idea of Hillary was, you can have austerity and it didn't matter, 'cause if you did some infrastructure, wow, the economy would expand. It's like magic beans. No... What we're talking about is creating greater demand where there's inadequate demand, and the infrastructure can be a good way of producing increased public sector demand. Fine. It can have, in economics jargon, a much better multiplier effect than Republican tax cuts for the rich. All good.

But if, at the same time, you were doing some infrastructure, you're actually moving towards austerity, which is what Trump's OMB guy says that they're going to do, and what Paul Ryan says they're going to, while, OMB, Office of Management and Budget, then you're not net going to get stimulus. In other words, you'll get a bump up, yes, because of the infrastructure spending, but at the same time you get a bigger trough because of the austerity, and the net effect is that it's bad for the economy.

Now, I think there's going to be a timing issue. I think that they'll do the tax cuts earlier, infrastructure takes time to do and a lot of the benny's, these tax cuts and such, are over a number of years. So, I think you're going to get stimulus early in the Trump plan, and I think you will get a spurt of economic growth. And then I think you're going to get this austerity push that's completely incoherent with the first part of the plan, coming as well, and that is the one that could certainly push the economy into recession, but several years from now probably.

SHARMINI PERIES: All right, Bill. Interesting times. I thank you so much for joining us.

BILL BLACK: Thank you.

SHARMINI PERIES: And thank you for joining us on The Real News Network.

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END



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