Thursday, February 7, 2013

Privatization IV

Privatization: Part IV
'Social Insecurity' in the hands of Wall Street's vultures

By Mike Krauss
Bucks County Courier Times

Private prisons, private roads and bridges, a private postal service, private water and sewer systems — even private schools for public education — are all great money makers for Wall Street and the 1 percent.

But nothing comes close to the potential of privatizing Social Security. Wall Street has coveted this prize for decades.

It’s not hard to understand why: money. It’s not just the billions in fees and commissions to be made from managing private retirement funds. It’s the assets Wall Street will get to play with.

Social Security collects more than $1 trillion a year. Think what the barons could do with that.

They have.

They will do just what they did with mortgages, savings, investments and pensions in the run-up to the crash — gamble it away.

What then?

Social Security has been prudently managed since its inception by officers of the government accountable to the people. Wall Street, we now know, has made a business model of fraud and is accountable to no-one.

So when one or more of the Wall Street firms which will control your retirement security goes under, when some wizard guesses wrong, loses enough to take the bank down, what happens? Another bailout?

Of course. Congress and the administration have made it clear they will go on bailing out banks that are actually quite unimportant to most Americans. If the retirement security of actual Americans is threatened, they will have no choice.

And it is precisely this, the knowledge that Congress would have to bail them out, that will guarantee the gambling and fraud that will put any private Social Security at great risk.

We are told that Social Security is “in trouble.” Don’t believe it. This is the story line of the army of flacks on Wall Street’s payroll, from the think tanks to Congress, and it is propaganda — decades of propaganda.

The propaganda claims Social Security adds to the deficit. It does not. It is funded by employees and employers, not any appropriation of taxes from Congress.

The propaganda claims there are not enough young to keep up payments to the old. Nonsense. The U.S. population has grown steadily for decades, and will keep growing. The problem is not a lack of people, it is a lack of jobs for the people.

The propaganda claims the fund is broke. But in fact, Social Security was accumulating large surpluses in its trust fund right up to 2012; surpluses, which in fact it loaned to the federal government. And Social Security has been so well-designed that the interest paid on government bonds more than made up for the shortfall resulting from the economic collapse.

The propaganda claims Social Security must go broke because Americans now have higher life expectancy, which was not accounted for at the program’s inception. Again, not true. As Yves Smith points out in her blog Naked Capitalism, “It is absolutely clear from the record that the designers knew that the number of people over the age of 65 was going to increase and that people were going to live longer.”

More important, it is not life expectancy — how many years we live — that drives the overall cost of benefits; but how many years we live after we start to collect, which for most Americans is in the middle of their 60s.

Life expectancy is now longer because infant mortality was so much higher when the fund was created. But life expectancy after the age of 65 has grown only modestly.

The drive to privatize Social Security is fueled by Wall Street and the biggest lobby in Washington — the U.S. Chamber of Commerce. What’s their angle? Are they laying awake nights worried about the future of American workers?

Of course not. The Chamber is dominated by the largest employers and the multinationals. And they hate having to pay into Social Security. It reduces their profits to pay the mega salaries and bonuses of CEOs and dividends to the 1 percent.

But, won’t the private sector run Social Security so much better and more efficiently than the government?

Think again.

The Social Security Administration exists only to deliver retirement support. (For millions, all the support they will ever have.) It has no expense for marketing or advertising to lure you away from a competitor. It is run by civil servants at a civil servant’s salary.

Today, if you have a problem with Social Security, you can email, or call, or make an appointment and get attention. If that fails, you can call your congressman or congresswoman. Almost all have staff assigned specifically to Social Security.

But if Social Security is privatized and you have a problem, you will call a “Customer Service Specialist,” who will probably be sitting in Karachi or Calcutta. Press 1 for English, 2 for Spanish, and you will speak with someone whose English or Spanish you will struggle to understand, and whose job is to make sure the company doesn’t spend a dime on you.

Kind of like your “managed care” provider: they will manage to keep their profits high and your care low.

The only real danger to Social Security, the only real threat to a modicum of dignity and security for tens of millions of aging Americans is that Social Security will be privatized.

Mike Krauss is a former officer of Pennsylvania county and state government and chairman of the Pennsylvania Project. Email:

Editor’s note: Last in a series.

Privatization III

Privatization: Part III

Private roads paved with public gold

In 1995, The California Private Transportation Company (CPTC) was awarded a 35-year concession to construct and operate the first private toll road in the U.S. The company promised less congestion and savings. But the traffic just got worse and state and local officials decided to build more non-toll lanes. CPTC, a private company, filed a lawsuit to block — competition.

Officials had missed a non-compete clause in the contract. In the end, the local transportation authority had to purchase the private toll lanes for $208 million, before they could build the additional lanes needed.

In 2008, Chicago sold its parking meters to a private company for 75 years, taking in a one-time payment of $1.5 billion. In 2011 the company took in more than $80 million, and is seeking another $27 million for free parking for the disabled and other revenue lost during street repairs. For one of the 75 years.

In what a Chicago newspaper described as “an annual ritual that has become as predictable if not as joyous as a New Year’s Eve countdown,” parking rates in Chicago are going up again, to $6.50 per hour in the downtown, the highest in North America.

Deals like these are increasingly common in the United States, sold by the same crowd that the conned cities and school districts coast to coast into disastrous interest rate swaps, rigged the municipal bond market, fixed international interest rates and set up the foreclosure catastrophe.

The main selling points of the “privatizers” are almost always the same: the private sector can do everything better than the public sector, and offers lower municipal operating costs that keep taxes down.

The claims don’t hold up.

Costs may be kept down, but usually by eliminating jobs. It is a patently absurd claim that more unemployment is any city or state’s best interest.

As for lower taxes, what is the difference between the taxes the people to operate meters or collect tolls, and a parking charge of $6.50 an hour? Either way, the people pay.

But privatization is all the rage, foisted on cash strapped municipalities as a solution to declining tax revenues and rising debt service, by investors who “want to help.”

Oh, please.

Privatization is about making money for those with money, at the expense of people who haven’t got any and the public balance sheet.

Writing about infrastructure projects in Dollars & Sense, Darwin Bondgraham explains.

 “It [privatization] is propelled by an infrastructure-industrial complex composed of global construction corporations, investment banks, private-equity firms, and elite law firms organized as vertically integrated consortiums. Allied through their own trade associations, they are actively pressing for new laws to expand the types of public infrastructure from which they can extract profits.”

And the bigger the deal, the bigger the take. Another Wall Street Special. Bondgraham explains.

“The main source of project financing, however, comes from investment banks that lend to the consortium partners. Proponents claim that this private financing source is a solution to the budgetary constraints of governments. But the sources of revenues available to pay for the cost of a project — whether it uses the traditional financing approach or a public-private partnership — are the same: specifically, tolls paid by users or taxes collected.”

In the end, the people pay for the infrastructure their families, communities and economies require. The point of privatization is not to meet public needs, but to divert the potential revenue from the 99 percent to the 1 percent.

As has been well demonstrated, private financing is almost always more expensive than financing projects through a public authority, so the sellers advertise reduced risk to the municipalities. But, what is the actual track record?

In 2010, the private South Bay Expressway in California, owned by an Australian investment bank, went belly-up. A bankruptcy judge forced U.S. taxpayers who had subsidized the project with federal loans to take a 42 percent loss.

The Camino Colombia Toll Road in Texas also went bankrupt, on account of lower-than-expected traffic. Camino Colombia was auctioned off purchased for $12 million by the lead creditor, John Hancock Life Insurance; which promptly resold it to the Texas Department of Transportation for $20 million.

Undaunted, the privatizers are pushing a new scheme. A small army of lobbyists are lobbying state legislatures to re-write state laws, and shift  to what is called an “availability payment” model.

Availability payments are like lease payments. For example, the state pays the private developer of a highway to maintain the road, but instead of the private owner collecting tolls from users, the state pays the private developer directly from the state’s general fund, collected through a gasoline or other tax.

These “availability payments” shield the developers against risk, because their income is not dependent on actual traffic volumes. Their income is guaranteed by the government — the taxpayers.

And of course, there are gimmicks. The privatizing lobby got Congress to exempt from federal taxes the “private activity bonds” (PABs) used to finance these deals. This allows the private borrower to obtain cash at less cost. Another tax cut for the 1 percent.

Out-gunned or just plain gullible public officials must be held accountable to the public interest, and examine the claims of the privatizers against the track record, weigh the long-term costs of unemployment, lost assets and lost revenue and stop paving private streets with the public gold.

Mike Krauss is a former officer of Pennsylvania county and state government and chairman of the Pennsylvania Project. Email:

Editor’s note: Part 3 of four on privatization: Wednesday, Social Security.

Privatization II

Privatization: Part II
The Post Office Heist

By Mike Krauss 
Bucks County Courier Times

What is now the U.S. Postal Service (USPS) was organized by Ben Franklin and is older than the United States. It has been self funded since its inception and has never required an appropriation from the Congress.

The cost of stamps has of course risen over time, as has everything else

But now we are told the USPS is massively broke, teetering on bankruptcy, and can only be “saved” if it is privatized. Competition from private mail and package services and the advent of the Internet for routine correspondence and bill paying are the often cited reasons for the failure; that and “inefficiency.”

It’s a scam.

Think about it. The competition from the likes of Fed Ex, Yahoo and on-line bill paying and banking is not new. And automation has made mail handling steadily more efficient. Why is the postal service suddenly broke?

Because a Republican Congress wanted it to be broke, and in 2006 required the USPS to pre-fund postal retiree health benefits for 75 years into the future, a burden no other public or private company is required to carry. Payments of $11.6 billion are due now on those obligations imposed by Congress.

Why would anyone want to intentionally bankrupt the USPS?

The answer is so that a crisis can be created, like the fiscal cliff, to justify “reforms” that are in the interest of the 1 percent who now own much of the Congress and most of the wealth of the Unite States, and would like even more.

If the post office can be privatized, one more union can be reduced; another cherished goal of that part of the GOP which is funded and cheered on by the likes of the Scaife Foundation, the Carthage Foundation, and the Charles G. Koch Foundation.

There is already in place what amounts to a business plan to privatize the USPS, written by the pro-privatization American Enterprise Institute in 2011, called “Return to Sender: Reforms for the Failing Postal Service.”

And on cue as Congress got back to work (Well, got back to Washington, anyway), another “independent” think tank stepped up to undertake a study of how the USPS can be “reformed” in a “public-private partnership.”

This time the effort is fronted by the National Academy of Public Administration. Its study team will be led by David M. Walker, who is the former president and chief executive officer of the Peter G. Peterson Foundation. Peterson is a retired Wall Street baron who now leads the cheerleaders of Team Wall Street and the calls for “fiscal responsibility.”

Translation: cut Medicare and privatize Social Security.

But, you say, OK, I understand that many Republicans and even Wall Street New Democrats in the Obama Administration want to further reduce unions and privatize America. But you ask, why would anyone want to buy an enterprise doomed by the competition of new technologies?

The answer is real estate.

The USPS reports owning more than 8,000 properties (including over 300 million square feet of interior space), and about 500 acres of undeveloped land. Most of that is prime real estate in downtown locations all across the United States.

How much is all of that worth? One of the reports supporting privatization put the “book value” at $15 billion. This puts the actual sale price at about $105 billion.

As Andrew Reinbach observed in an analysis published on Huffington Post, “Privatizing the USPS has the potential of being one of history’s biggest — and most profitable — real estate deals ever.”

He explained how the deal would go down.

“When the USPS becomes a private, investor-owned corporation, it would be split into two entities, an operating company that handles mail and packages, and a separate company that owns the real estate. The real estate company would then sponsor a series of vehicles — real estate investment trusts, probably, or even limited partnerships — each appealing to a specific subset of investors.”

Enter Wall Street.

“These in turn would lease some of those properties back to the USPS, and lease or sell others. That first would increase the operating expenses of the USPS, but also reduce its taxes, since leases are tax deductible. It would be sold as a way to subsidize the operating company, preserving universal mail delivery, jobs, and benefits.

“Then the real estate companies would take the cash flow from the USPS lease payments, and the other lease payments, and turn it into bonds.”

More Wall Street.

“Since the leases would be on commercial real estate, the income would be sheltered from taxes for years, because as commercial property, it could be depreciated. When the bonds matured, the company could lease the properties all over again, or sell them. The properties not treated this way would either be sold, re-developed, or re-developed and then sold.”

And if the operating company eventually collapsed, well that’s just too bad for the unionized workers. “After all, it was a sinking ship, but we tried,” the privatizers will say.

But as Reinbach points out, “The real estate company wouldn’t sink. And the deal could be used as a template for other privatizations.”

Your local school district, for instance. Lots of real estate there, too.

Mike Krauss is a former officer of Pennsylvania county and state government and chairman of the Pennsylvania Project. Email:

Editor’s note: Part 2 of four on privatization: Tuesday, infrastructure; Wednesday, Social Security.

Privatization I

Prisons for profit: The new slave labor

By Mike Krauss
Bucks County Courier Times

In the decades after World War II the American people built up the greatest and most broadly shared prosperity the world had ever know. That immense wealth attracted admirers. Millions wanted to be a part of it. Others wanted to own it.

Now, that wealth and the political power that goes with it are grotesquely concentrated among an ever smaller number of American citizens, in a way to rival the Roman aristocracy of ancient times or the European aristocracy which the first Americans threw off.

Democracy itself is threatened.

And the soul-less predators among the 1 percent want more, and are flexing their political muscle to get it. Like the remorseless killer of the James Bond movies, for them, “the world is not enough.”

Their next acquisition is the hard assets of the American people. Their siren song is “Privatization!”

The first target was carefully chosen: prisons.

Who cares about prisons, right? I mean, they’re full of criminals. But that is not how Wall Street sees prisons. They see a cheap and captive labor force.

And state by state, city by city, county by county, American prisons are being privatized and the prisoners put to work for their new owners, making an astounding array of products that are sold into the American market, to take market share and help drive down the wages of honest labor.

Prisoners are “paid” at about $1.25 per hour, to be spent in the company store; like the coal miners in the company towns of Pennsylvania and elsewhere until the mid 20th century.

Off-shoring has been done. Now, we can in-shore cheap labor. And don’t forget illegal immigrants. Wall Street hasn’t. The ones who get into the labor force drive down wages, and the others we can round up to keep the cells full and the private prisons profitable.

Hotel rooms, airline seats, prison cells — same profit and loss dynamic. Keep occupancy high and costs low.

High occupancy is achieved by (What else?) an army of lobbyists and campaign contributions, to insure ever more draconian prison sentences for non-violent and even minor offenses. When that fails, judges can be bribed to keep the cells full, as they have been in Pennsylvania.

Here is a how the CEO of one of the big private prison companies might explain cost control to a manager of one of the prisons they operate:

“You spent how much on blankets, clothing, food and medical care? And what the hell is this Internet access learning stuff? Rehab? These jerks aren’t going anywhere. We’re gonna keep ‘em right where they are, filling the cells. Look, I’m not about to lose my bonus because you can’t keep costs down. You wanna’ keep your job? Then get those costs down. And I mean now!”

The result, which came to light spectacularly in a juvenile prison in Texas, is shameful, even squalid living conditions.

The buying and selling of prison labor is the modern equivalent of 18th century slave auctions. Then, slaves were sold one by one on the auction block. Now, they are sold in gross lots.

The buyers are agents of the private prison companies, New York Stock (and livestock) Exchange listed. They show up in their $2,000 suits with 29-page power point presentations, telling the sellers — the elected officers of our governments — about all the money they can save taxpayers. (“And maybe there’ll be some stock in it for you. Know what I mean? ” Wink, wink.)

And the sellers, no fools they, bargain for the livestock. Because all sales are final.
“Look pal, we can guarantee you 3,000 prisoners a day, forever. And you want that for $50 million? Get real.”

What a thing for a proud parent to tell his children.

“What did you do today, Daddy?”

“Well honey, I sold our prisoners to a really fine company. Got a good price, too. Now you don’t have to think about them anymore.”

“Oh, thank you, Daddy.”

There is of course an alternative to this modern and immoral trafficking in human beings, as a means to reduce the cost of prisons borne by taxpayers: put fewer people in jail.

More than 2 million people are imprisoned in the U.S. today, more than the total for China and India combined — the populations of which are more than eight times that of the U.S. Two thirds of those in U.S. prisons have been sentenced for drug related and non-violent offenses. Many are non-whites who are far more likely than whites to be sentenced to prison and for longer terms.

In a hopeful sign, some states have begun to seek alternatives to packing the prisons, and to examine the draconian and mandatory prison terms enacted in the “law and order” mania that followed the social upheavals of the 1960s.

With the help of organizations like the Center for State Innovation and the Pew Center on the States, states such as Minnesota, Indiana and others are embracing new ideas and policies to insure public safety while at the same time reducing the prison population.

But there is a long way to go. The private prison pitch men are on the prowl, looking for elected officials who won’t mind trafficking in prisoners if they can wrap themselves in a balanced budget.

Mike Krauss is a former officer of Pennsylvania county and state government and is chairman of the Pennsylvania Project. Email:

Editor’s note: Part I of four on privatization by Mike Krauss: Monday, the Postal Service; Tuesday, infrastructure; and on Wednesday, Social Security.