Fleecing the USA Again: Non-Performance-Based P3 Banker Fees

After three decades of privatization with its massive divestment from our public infrastructure and services, we are finally taking stock. Our levies are broken, drinking water poisoned. We have collapsed bridges and power outages. Making vital decisions based on ideology instead of evidence has had real costs.

With astounding infrastructure needs and severe budgetary shortfalls, we are in national crisis. So, we are turning to private investment to co-finance our recovery--public-private partnerships (P3s)--to repair levees, bridges, and water systems, as well as to build large scale clean energy projects, high speed railroads, and power plants. If done right, we can forge a public-private partnership akin to the Second World War when P3s drove us to victory.

However, our least patriotic institution, the large scale investment bank, seems to have something different in mind. After decades of taking money out of the pockets of the poor and middle class in order to line their own pockets and pay for private jets, they are now queuing up to profiteer on our social services and public works. Infrastructure is expensive, and arranging deals can net big fees. As we tighten our belts in order to afford the cost of new water pipes and windfarms, they reach for our wallet.

The People of Chicago paid out $26,802,220 to lawyers, bankers, and other professionals to arrange the Skyway, Downtown Public Parking System and Metered Parking P3s. This included $8,400,000 to Goldman Sachs for the Skyway alone. If the quality of the contracts and the performance of the projects is any indication, the professionals who arranged this triad of P3s took more out of the public purse than they contributed.

If we are going to aggressively pursue P3s for our reinvestment, then we need some basic rules when it comes to how much these barons can charge.

Professional fees are one of the biggest costs of capital. They drain value from our projects, making it less likely that we'll be able to pay back the money. They also take money out of government budgets that would be better spent keeping school lunches going.

Only three rationales exist for professional fees:

1) If the professional shoulders risk.

2) If the professional vouches for the quality of the project, the bond, or the contract.

3) If the professional provides expertise.

All else is nothing more than a toll charge on the road to capital. Recycled contracts are nothing more than a toll charge. Just like I don't pay my bank teller to reach into the drawer to give me money from my bank account, I should not pay a TARP bank to use my money to pay for drinking water.

It is not enough for cities to publish financial data about P3 deals once they've closed. We need to know how much professionals are charging before a deal closes, so that we can judge the quality of the deal before we invest. These charges must be transparent and widely circulated. And, accounted for.

After the Second World War, companies that profiteered on government contracts were widely condemned as unpatriotic and sometimes prosecuted.

Comments

[jdhaskell]

Part 3

If the Obama administration has taught us anything, it is that the mainstream Democratic party is ultimately in the pocket of huge financial interests and is simply incapable of delivering meaningful reform on its own. The answer to me, at least for the present, seems to be that if we believe in a liberal democratic model, we are going to have to start fighting much harder for it, and drawing much more clear lines between our allies and enemies, in a way that remains anti-violent, but that works openly towards openly material, organized political action. Somehow we've got to get from the blogs to the Washington Offices; from writing articles to getting masses in the streets protesting, and so on. In the meantime, in an act of complete performative contradiction, I'll keep just writing blog responses, donating time and money to candidates I like, and focusing on finishing my own academic degree.

Great article - it fueled a moment of re-engagement with the shock and horror of how our system is currently functioning.

[jdhaskell]

Part 2

Second, let's say we decided to change our behavior, and started to really think about acting as a mensch in our daily lives, it seems that to do this on a political scale means to either begin to gear up for organized violence (aka, imagine if banker and insurance ceo's families started being assassinated for the ceo's role in America's collapse; there would be a change in positions probably really fast, or imagine wealthy housing communities being stormed by angry mobs) or alternatively, organized civil political action that would start fostering its own candidates. Obviously, the first approach seems to lead to horrific results, and the second option seems destined for regulatory capture. The reality is that too many people still have a little too much to lose to do what is necessary, the system is not sufficiently at the stage where the wealthy are actually scared of their own positions, and so on...

[jdhaskell]

Part 1

Great article, and goes right to the heart of the matter. There is an escalation over the last 30-40 years (though Woodrow Wilson campaigned on a similar platform) of corporate / financial sector entrenched with political affiliates in a pretty open project of taxpayer extortion. Of course, this is all justified upon neo-liberal economic arguments and home-spun conservative America populism, but ultimately most Americans have a pretty clear idea that this is theft in one form or another. In other words, it's not so much a question of 'education' - we already know we are being ripped off left and right.

The problem seems two fold. First, the exploitation is coming from all directions, and really, if you get down to it, there isn't an ethos right now in the country that it is even necessarily wrong - in short, people are angry it is happening to them, but they don't know where to start, and moreover, they are themselves so self-obsessed that they would probably do the same thing if they were in a position of power. We have become sufficiently materialist and self-involved that really people, which combined with the sense that we live in an inescapably subjective universe, allows us to steer clear of taking any political stands, especially ones in our private and professional lives, let along in public.

[CarmanK]

Privatization fails again to produce more for less and the taxpayers are ripped off again. I really am getting very tired of this broken record: no taxes, more for less, private sector can do it better, efficiently and effectively. It is all a myth perpetrated by the reaganites who see only $$$$ at taxpayer expense. I am tired of corporate welfare while the "poor" in our midst go hungry. I am tired of the Halliburtons, blackwaters ripping us off day in and day out. I read earlier, that the bill that "defunds" ACORN will also finally address the abuses and fraud of other companies that do business with the government. Also, is no one curious as to what Blackwater will be doing with its training compound and hired guns when the fed stops sending them overseas. Are we as a nation supporting a mercenary force that could endanger our democracy. The head of blackwater is a fanatic, what is to stop him from being another GoldFinger??? We need real oversight of these burgeoning independent guns and regulations on their activities.