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OMB - Where Does the Money Go & BABs Default?

Bruce Krasting's picture





 

 

The Office of Management and Budget (OMB) has come out with a detailed breakdown of the spending cuts associated with the sequester (LINK). This is one hell of a document, it runs 83 pages.

Those who believe that government is too big should spend some time looking this over. They will get sick. For those who think that government is too small; well, they should also spend some time with the report. No reasonable person could look at this and conclude that all is well in D.C.

 

I reviewed the report to determine what the consequence of sequestration would be on interest payments on BABs bonds.There was so much more to consider than BABs. First some details on the BABs, then some thoughts about the budget in general.

 

The Build America Bond program (BABs) was a child created in 2009 when the Muni bond market was freezing up. The federal government agreed to pay 1/3 of the interest on the Muni bonds. The cost to the Treasury in 2013 was anticipated to be $3.4b, but the 5.1% cut across all budget items reduces the payout by $171m.

Really? The amount involved is small, but a payment default on interest is a payment default on interest. What's going to happen? Are investors in BABs going to get stiffed? Are the states and cities that did the actual borrowing going to have to pick up the Federal shortfall?

BABs are the biggest category of debt that will suffer from cuts. Qualified School Construction Bonds, New Clean Renewable Energy Bonds and Qualified Energy Conservation Bonds will also see their coupons "clipped" by the sequestration. As this is about money, contracts and debt, it is a sure thing there will be some suits over this. I see it is as a technical default on a debt obligation.

 

Some broader thoughts on the information from OMB:

 

* The government has many employees, as a result, the government must contribute to the Social Security Trust Fund and the Medicare Fund. These payment are not much different than what a private sector employer is obligated to do. The federal government was supposed to pay SS $5.7B; as a result of the sequester, the amount will be reduced by $250m.

This is bullshit. Reducing payments to SS in 2013 means that the SSTF will run out earlier. There is no "Savings" associated with this. It's just a kick of the can. There is no cut of expenses, it's just a deferral. Each department of the government is scheduled to make payments to various Trust Funds. All of those payments are being reduced by 5%. There is not one penny of true savings attached to this; it's a shell game.

 

* One of the greatest deals the country gets is with the Supreme Court. The Supremes have a cost of only $73m. By comparison, the Federal Court of Appeals spends $3.8B.

 

* The President was correct when he said that money for food inspection would be cut. As a result of sequestration, $106m will be lopped from the inspector's budgets. But the budget was $2.3B to start with. We spend this much money, and we still get 50m case of food born illnesses a year.

 

* NOAA costs $3.3b, the Patent Office runs another $3b. The Department of Education spends $15.8b on Accelerating Achievement and Ensuring Equity. What's that about?

 

* The Department of Energy has a budget of $7.7b to build nukes. It also has a budget to spend $2.4b on Nuclear Nonproliferation. So the US builds them, while spending big bucks to stop others.

 

* The Department of Energy is scheduled to spend $5.4b on Defense Environmental Cleanup. The sequester will cut $250m off the tab. Think Rocky Flats and Hanford.

 

* The CDC costs $5.7b a year. The National Institute of Health drops $31b a year! What are the doing at NIH?

 

The TSA spends $5.5b on Aviation Safety, but only $136m on Surface Transportation Security. Maybe that's the right ratio of spending given what happened with 911. Time will tell. The Border Patrol costs a mega $11b; while on the other hand, you have spending for Protection of Foreign Missions and Officials at only $27m! Think Libya.

 

* FEMA has a budget of $18b, $900m of that will be cut. This a joke. If the country has another Sandy or Katrina, the cost will be $100b. Congress will pass a supplemental bill for the cost when another storm hits. The US is "Self insured", but it has no reserves for losses, and we are having 100 year storms, three times a year. There is a category for Unanticipated Needs, a lousy $1m is the budget, it will be cut by 50k.

 

* The operating cost for the IRS is a lumpy $12b. One budget item, Informant Payments caught my eye. The budget for "rat fees" comes to $125m.

 

* The Foreign Military Financing Program spends $6.4b. The budget for Pakistan Counterinsurgency Capability Fund is another 1b. Probably nothing to see here, right?

 

* The military sucks down huge bucks. There are pages and pages of details. It's hard to make sense of it all. The annual fixed costs at the the Pentagon come to $76b, nearly half of that cost is for healthcare. The operating costs of the Air Force, Navy, Army and Marines comes to $189b

The real cost of the military is all of the "stuff" that it buys. Big ticket things like aircraft carriers, jets, missile systems, tracked vehicles and the like. It's over $130b a year. The sequester requires an 8% cut of these expenditures. The numbers are big enough to move the GDP, and this certainly will hit employment.

The military is spending $60b in R&D; think there is any "fat" in that budget? One item I thought was interesting was in the budget for procurement for Ammunition. $4b for bullets. Do they really need 10 billion bullets a year?

 

I could go on for a bit. There was not a single page of the 70 detailed pages that did not have one or two items that were questionable. The sequester is a stupid way of going about cutting expenses, but there is a ton of fat in what is spent.

 

Warning: The report is endless. It will hurt your eyes and piss you off.

 

Major

 

Stinks

 

 

 

 

 

 

 

 


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Wed, 03/06/2013 - 03:16 | Link to Comment Mediocritas
Mediocritas's picture

The NIH has already been subjected to funding cuts and this has already impacted US research:

- In real terms, NIH research funding peaked in 2003 (~21B) and is now 20% lower (~17B).

- The success rate for research projects applying for NIH grants peaked in 2000 at ~32% and has now fallen to ~18%, a serious decline. Ie, 4 out of 5 projects that currently apply for NIH funding are being denied. This is a meritocratic process that does actually do an OK job of keeping research lean (although it could be better), but a lot of good stuff is currently slipping by unfunded (for other nations to collect upon).

- The number of research projects applying for NIH funding peaked in 2004 and has now fallen by 8%. Less research is getting done.

R&D is broken into three categories:

1: Basic Research: this is exploratory and investigates the unknown. For example, sequencing the human genome for the first time. Is is often NOT hypothesis driven and typically involves pointing some fancy new prototype measurement device at a sample to see what happens (fishing expeditions). Most of the time it goes nowhere, but when it hooks something good then it sets the foundations for entire new industries. Because it's high risk, high reward with long time delays between doing the work and collecting on it, only governments are prepared to really fund it (recovering costs through taxation of downstream winners). Citizens generally perceive Basic Research to be wasteful because it's hard to connect the dots between the iPhone in your hand now and some obscure scientist playing with a machine that went ping 40 years ago.

2: Applied Research: this is guided and generally hypothesis driven. It takes select knowledge from pre-existing research (much of it Basic Research) and applies it with a specific goal. For example, trawling the human genome for associations with disease is closer to Applied Research. The general public is better able to see the point of Applied Research and corporations are also more likely to engage in it as there's less risk and a clearer path to profit. Applied Research ultimately depends on Basic Research.

3: Development: conversion of Applied Research into consumable goods and services. For example, developing a drug to treat a known genetic ailment, that can then be marketed and produced at scale. Everybody loves development, but governments generally suck at it. Governments are best to stick to Research and leave the Development to the private sector. It's a symbiosis. Let companies profit from Development, then tax some profits back to fund the Research that led to that Development and feed further Research.

Spending for these categories breaks down as follows: (note, numbers are a bit stale, for fresher info read the latest NSF Science and Engineering Indicators report here: http://www.nsf.gov/statistics/seind12/pdf/seind12.pdf ).

-- The private sector spends about 3% of total sales on R&D. Of this, ~7% is Basic Research, ~13% is Applied Research, and ~80% is Development.

-- The government spends about 3% of GDP on R&D. Of this, ~20% is Basic Research, ~20% Applied Research, and ~60% is Development. The NIH takes the largest share of Research funding, whereas the Military takes the largest share of Development funding. Overall, the Military consumes in excess of 50% of all government R&D spending.

-- Of the ~35B allocated to Health and Human Services (which encompasses NIH), 53% is spent on Basic Research and 47% is spent on Applied Research. The NIH does not do Development (where the profits are) because this is done better by corporations. Pharma and biotech companies circle the NIH like sharks waiting to snap up any promising research that pops up, develop it, rake in the bucks, then produce propaganda / advertising to pretend that they also did the research. Sadly, people fall for it.

-- Of the ~68B allocated to Defense, spending is ~3% on Basic Research, ~7% on Applied Research and ~90% on Development (weapons). 

-- The US still leads the world in total R&D spending (although not if considered as a % of GDP).

There's a huge amount of fat to be trimmed in government spending, there's even some fat to be trimmed in government R&D spending (particularly military R&D), but the NIH is pretty low on the list. If you really want to reduce spending then target cronyism. Way too many crimiinals have their hands in taxpayers' pockets, both directly (through subsidies, tax evasion and bailouts) and indirectly (by increasing the cost of living (inflation) ). Clean up Washington, boot out all the lobbyists, eliminate preferred treatment and government spending could be cut by 50% overnight.

Wed, 03/06/2013 - 03:29 | Link to Comment Mediocritas
Mediocritas's picture

I don't mean to imply in the previous post that Research spending is efficient or sacrosanct. I've worked in Research, I know all about it. The funding system has a lot of room for improvement and science is actively held back by idiots in administration who hold the purse strings and are politicized.

A better idea would be for scientists to pitch their projects on a science KickStarter to attract funding from the public. For every private dollar raised, the government would then match it with, say, 5 dollars. That way the general public gets to actively control where the money goes and what gets researched.

Maybe we'd get a billion dollars to research why farts stink more in the shower and nothing to research how to cure cancer, maybe, but I have more faith in people than that. Point is, I doubt the outcome would be much worse than letting small, biased granting committees have the ultimate power. Let citizens do the judging with some skin in the game (to make sure they THINK about what they're doing), and let governments back it up with the muscle.

Wed, 03/06/2013 - 00:54 | Link to Comment TimmyM
TimmyM's picture

Ok Bruce,
The way BABs work is that the issuers have to make up the difference. But issuers had some good skeptical lawyers so they put in extraordinary redemption provisions that allowed them to call the bonds early if the subsidy got tampered with.
Now all these bonds have different provisions. A few are immediately callable at par. But most have make whole calls that allow a call at an accreted spread to benchmark Treasury.
Since Treasury rates are significantly lower now than they were when these bonds were issued, and credit spreads have narrowed, and since the IRS required that BABs get issued at par, most of them are trading at significant premiums. While a 5% loss of subsidy is not a killer, since the muni as a percent of Treasury ratio is improved of late it is possible some of this debt could get called extraordinarily at a premium but at a lower price than some investors have recently paid. The bond could get refunded with traditional tax exempt debt, especially if the muni /treasury ratio keeps improving. The call price is a function of the treasury price. It is quite complex. But if a refunding fee is involved-wallstreet is at work, and if some issuers feel stiffed and can refund at break even, they may do so just because they now have experienced a real legislative risk.
So the real risk is investors in the secondary market getting screwed by not considering the true yield to worst outcome of the extraordinary call. This is kinda like the tampering with the rule of law and property right of MBS holders losing their premium to HARP and HAMP.

Wed, 03/06/2013 - 00:02 | Link to Comment Hal n back
Hal n back's picture

The patent office charges sizeable fees to those with patent applications and from what I can tell the patent office actually shows a profit which is "confiscated" by Congress.

 

We probably should be encouraging more patent applications.

Tue, 03/05/2013 - 23:27 | Link to Comment disabledvet
disabledvet's picture

what set's me off (among many things these days it seems) is listening to one of our Bureau-bots decry the so called "budget axe" without offering any plan for "doing more with less" as the bulk of not only the American people have been doing oh these many years...but the whole friggin' planet as well. HOW DEAF ARE YOU PEOPLE? WE THE PEOPLE HAVE GOTTEN SCREWED HERE---at least come out and say "we understand what Americans are going through." and for good measure perhaps they could add "hell, most of the world has wiped out here." in so doing they might aid their cause a little since most of what's being done anyways is just interest payments on the debt...eating into EVERYONE'S budget.

Wed, 03/06/2013 - 00:00 | Link to Comment willwork4food
willwork4food's picture

Doing more with less? They don't know the meaning of doing more for less.

They gave themselves a raise again this year....just a slap in our face.........

 and they wonder why we hate them.

Tue, 03/05/2013 - 23:25 | Link to Comment TBT or not TBT
TBT or not TBT's picture

I dunno.   Most companies product or service I have a choice about paying for.   Their activity represents economic freedom, the corrolary of "freedom".     Government is not a person, for sure.   It ranks below corporations on the personhood scale, definitely.    And this must be so.

Tue, 03/05/2013 - 22:43 | Link to Comment onlooker
onlooker's picture

 

 

In my underachieved and overreached humble opinion, Krasting has furnished ZH readership, and his Blog I assume, with a stunning article. Here we have it to understand, laid put in readable fashion for anyone that has a minimal attention span and modest understanding of U.S. doings with our money (or money they create our of thin air).

 

This could be the Sandy Hook of the Government financial fiascos. As the left/Obama/Democrats quickly moved on the hyper emotional fuel of gun banning, this is a better time for the People to move on a less gut grabbing and less media attentive Issue of lasting National destruction. This time Krasting has brought to our attention part of the horrific cancer that is killing our Nation. It may be a tool to open eyes of those that know things are wrong but can not focus energy on an issue that can be sustained. Or, they do not have access to information or ways to put things into perspective.

 

This is a war that each of us can fight without becoming acquainted with the 1.5 Billion rounds of .40 HP++ and the 2500 armored tanks type vehicles that HLS has ordered for Domestic use. This tool/issue/vehicle ,or what ever you name it, could be spun to age quickly but just today’s numbers are all that will be outdated. I doubt that this article will be the attention of main stream media or Fair and Balanced. But, the basics of the 80 page document and the problems it shows can be used for a long period of time with tuning. I think it will be new news for a period of time that will make it valuable.

 

A plan that might be a starter:

  1. Copy and send out Bruce’s article.
  2. Print out the 80 pages and read it until it can be sectioned off for presentation to others.
  3. Send the 80 pages to several people. A call on the phone to get them to read it may not be a bad idea.

 

If you want to do something about the current mess, and want to invest in the future of your nation and families, this may be a once in this decade opportunity.

Tue, 03/05/2013 - 21:43 | Link to Comment Clever Name
Clever Name's picture

Hmmm.

There is no "Savings" associated with this. It's just a kick of the can. There is no cut of expenses, it's just a deferral. Each department of the government is scheduled to make payments to various Trust Funds. All of those payments are being reduced by 5%. There is not one penny of true savings attached to this;

 

Unless there is some plan to reduce payouts in the future...Soylent Green is grandma?

Tue, 03/05/2013 - 21:07 | Link to Comment knukles
knukles's picture

Just because the feds don't pay the city/state/issuer whatever, doesn't forgive the issuer to choke up the interest.
Is there another lesson here about trusting central planning and intersections with Murphy's Law?|
The fickle finger of fate commeth along and ...

So what happens when the first BAB bellys and blames such on the Federalies. 

Bruce, great question.
With whom is the contractual interest payment made? (Probably varies issuer by issuer.) 
Now, if I were an issuer structuring the obligation I'd a made it clear that if the coupon isn't paid by the Feds for the Fed's portion and I still made my portion of the payment, then I'm not the one in default.
The Feds would be.

Oh me oh my!

BRUCE!!!!!!

Have we here a situation analogous to the European Law versus UK Law with respect to Greek debt?

Tue, 03/05/2013 - 20:33 | Link to Comment Intoxicologist
Intoxicologist's picture

Customs and border patrol shell out 15 million to wool manufacturers? 

Why?

Wed, 03/06/2013 - 00:18 | Link to Comment sitenine
sitenine's picture

Don't know. Got to do with where choo-choo go.

Tue, 03/05/2013 - 23:56 | Link to Comment willwork4food
willwork4food's picture

So they can pull it over our eyes. Simple.

Tue, 03/05/2013 - 19:50 | Link to Comment Bastiat
Bastiat's picture

"I see it is as a technical default on a debt obligation."

 

I don't think so: the debt obligation is the issuer's (ie. the municipality), period.  Back in 2009 I advised against issuance of this crap for EXACTLY this reason--people laughed at me. 

The US failure to provide their subsidy payment is between the municipal issuer and the US.  If read carefully, IIRC, it is NOT enforceable by the municipality and would not be by the investor, indirectly.

It's like the very deliberate confusion created around Fannie and Freddie paper -- NOT a full faith and credit guarantee by the US but the investor is led to believe it's just as good, so it prices that way.

Tue, 03/05/2013 - 19:31 | Link to Comment BullyBearish
BullyBearish's picture

They're cornering the ammunition market, reducing civilian availability and significantly increasing price.  A gun is no good without ammo.

Tue, 03/05/2013 - 20:08 | Link to Comment Moe Hamhead
Moe Hamhead's picture

You're absolutely right.  I've been buying lead for the last year, and it's getting scarce.  I mentioned to a fellow shopper at WalMart that I hadn't seen much on the shelves lately, and he agreed that it has been difficult to find.  The law of supply and demand rules.

Tue, 03/05/2013 - 18:53 | Link to Comment SmittyinLA
SmittyinLA's picture

"The Supremes have a cost of only $73m."

 

You mean "direct" cost, actual cost of the US Supreme Court: 

 

A. Continuous criminal invasion (incalculable)

B. Socialist criminal invasion unfunded liabilities (currently est 212 T)

C. US Sovereignty 

D. ......

Tue, 03/05/2013 - 18:52 | Link to Comment Widowmaker
Widowmaker's picture

FUCK THE LIBERAL OMB!

Can't even get to the third paragraph without this horseshit "Because of Congress' failure to act..."  Go cry to your mommy you liberal fucks.

Burn this fabricated mess called "government" to the ground along with all the incorporated dick-sucking in DC.   Rot.

Tue, 03/05/2013 - 18:36 | Link to Comment Rainman
Rainman's picture

Jeezus !....they even sequesterized the Office of Government Ethics. Now that's a hear nuthin, see nuthin, say nuthin job if there ever was one....no matter the budget.

Tue, 03/05/2013 - 18:56 | Link to Comment knukles
knukles's picture

Sounds like a cushy job.
Aside from all the threats by the Uber-Powerful

"Son, you so much as lift a finger and you're in Gitmo without a citizenship"

Tue, 03/05/2013 - 17:54 | Link to Comment piceridu
piceridu's picture

OMB? OMG!

Tue, 03/05/2013 - 17:58 | Link to Comment knukles
knukles's picture

Gosh.
It's Tuesday afternoon and I ain't seen a difference, yet.
Altho, there probably won't be anybody monitoring the air or water quality out here in the People's Republic of California for Fukishima radiation, either.
If there ever was.
Oh yeah, they all got transferred to the Bikini Atoll about 3 years back.
Well, like I said.... it's Tuesday afternoon and....

Tue, 03/05/2013 - 17:46 | Link to Comment Winston Churchill
Winston Churchill's picture

So Bruce,

what is the implied subsidy on these local Govt.debts ?

Or put another way;

If Uncle Sam stops backing them ,what happen in the municipal bond market.

Tue, 03/05/2013 - 17:21 | Link to Comment QQQBall
QQQBall's picture

I thought "rats" got paid from the collections & penalties?

Tue, 03/05/2013 - 16:48 | Link to Comment Encroaching Darkness
Encroaching Darkness's picture

Bank guy, if you want to remove Constitutional officers for malfeasance, why not the entire DEPARTMENTS that are unConstitutional? I'm thinking DHS, DH&HS, DoE (both of them, useless Jimmah Carter creations) and the rest?

BTW, Bruce, NIH funds a lot of research into medical conditions, treatments, etc. Yeah, university / corporate welfare, but you asked.

And not paying SS funds due in interest is a technical default, I agree. Probably about time the whole house of lies comes crashing down anyway; can't rebuild something worthwhile until the failed / obsolete policies get hauled away.

Tue, 03/05/2013 - 16:43 | Link to Comment Gloomy
Gloomy's picture

Bruce- Most of the National Institutes of Health budget is used to fund medical research.

Tue, 03/05/2013 - 20:03 | Link to Comment ebailey5
ebailey5's picture

Have you ever seen the dreck that gets funded by the NIH?  There is a whole industry surrounding grant writing to get funded by the NIH with absolutely no accountability for producing any research that is applicable to anything or in many cases, even a complete and coherent study.  If DOD R&D (60B/yr) is templated on NIH parameters, we are wasting 5.4B per year.

Tue, 03/05/2013 - 14:33 | Link to Comment Bruce Krasting
Bruce Krasting's picture

Not so sure I was tooting horns. I just said they were cheap.

Tue, 03/05/2013 - 20:05 | Link to Comment Mactheknife
Mactheknife's picture

Here's a question..at the height of the Iraq and Afgan wars we had 140 thousand troops over there many of whom were National Guard and the Pentagon was screaming that we were "stretched too thin"..remember?  Well, there are 2 million on the Pentagon payroll...so the question is...What the fuck were the other 1,860,000 people doing???

Tue, 03/05/2013 - 23:55 | Link to Comment willwork4food
willwork4food's picture

Um, checking the equities markets and watching porn?

Tue, 03/05/2013 - 19:15 | Link to Comment Almost Solvent
Almost Solvent's picture

 

Bruce:

Any thoughts on whether or not a parliamentary system would be better than our current system? That is, due to our gerrymandered districts nationwide, a parliamentary system would have resulted in a MR president, not BO.

 

That would likely have been very problematic based on the fact that Ds received millions more House votes overall. 

 

Also, would eliminate the need for a "supreme" court of lifetime judges, ala GB.

 

 

Tue, 03/05/2013 - 16:49 | Link to Comment machineh
machineh's picture

In terms of relative cost, yes. Your point is well taken.

But I had the same reaction as Bank Guy, a week after these Hacks in Black dismissed a suit against government spying on Americans, for plaintiffs' lack of standing.

Like the former Soviet Union, the failed Supreme Court is a value subtraction mechanism. 

Never the mind the modest $73 million. Our common well-being would improve by multiples of that amount if these shameful old paper-shufflers were sent home to drool on the front porch.

Tue, 03/05/2013 - 13:53 | Link to Comment bank guy in Brussels
bank guy in Brussels's picture

Bruce Krasting is regrettably tooting the horn of the most murderous cabal of gangsters in America, when he writes:

« ... One of the greatest deals the country gets is with the Supreme Court. The Supremes have a cost of only $73m ... »

Every one of those criminal 'Justices' should be impeached, under the clause in the US Constitution, allowing for removal of any federal or Supreme Court judge who is not in 'good behaviour'

I.e., they can be impeached simply for not honouring and upholding the rights of Americans ... No criminal act needs to be proven

Impeachment by the US House of Representatives, trial by the U.S. Senate

Even most Americans seem to think their Supreme Court is 'Supreme' but actually it is not ... the US Constitution makes it clear it is Congress, able to remove both Supreme Court judges and Presidents

It is too bad the Congress is too corrupt to use that power ... The US judges who don't honour the Constitution are at the heart of America's institutional failure, much more than the corruption of Obama or Bush

Tue, 03/05/2013 - 18:03 | Link to Comment piceridu
piceridu's picture

Most do not understand what you articulated above.

Alexander Hamilton wrote: "A Constitution is, in fact, and must be regarded by the judges, as a fundamental law. It therefore belongs to them to ascertain its meaning, as well as the meaning of any particular act proceeding from the legislative body. If there should happen to be an irreconcilable variance between the two, that which has the superior obligation and validity ought, of course, to be preferred; or, in other words, the Constitution ought to be preferred to the statute"

This is the most politcal Sumpreme Court ever assembled...they couldn't tell the Constitution from a Happy Meal menu.

Tue, 03/05/2013 - 17:51 | Link to Comment negative rates
negative rates's picture

Bring out your bonds....BRing out your bonds..........BRING out your bonds..........................BRING OUT your bonds................................................BOYB's!

Tue, 03/05/2013 - 17:44 | Link to Comment TBT or not TBT
TBT or not TBT's picture

How about an example of a bad high court decision, so we can see what your issues are.

Tue, 03/05/2013 - 20:03 | Link to Comment rlouis
rlouis's picture

http://www.projectcensored.org/top-stories/articles/13-corporate-personh...

This is just a portio9n of it...

THE HIGHTOWER LOWDOWN, April 2003
Title: “How a Clerical Error Made Corporations ‘People’”
Author: Jim Hightower

Faculty Evaluators: Mary Gomes Ph.D. , Ken Marcus Ph.D.
Student Researchers: Chris Salvano, Sherry Grant, Melissa Jones

Partial Mainstream Coverage: The New York Times, The LA Times, USA Today, Fortune Magazine, The Ottawa Citizen.

Since the founding of our country, a debate has raged over the nature of corporations and whether they should be entitled to the same right to legal “personhood” as actual people. This idea of corporate personhood has recently come under scrutiny.

It was back in 1886 that a Supreme Court decision (Santa Clara County v. Southern Pacific Railroad Company) ostensibly led to corporate personhood and free speech rights, thereby guaranteeing protections under the 1st and 14th amendments. However, according to Thom Hartmann, the relatively mundane court case never actually granted these personhood rights to corporations. In fact, Chief Justice Morrison Waite wrote, “We avoided meeting the Constitutional question in the decision.” Yet, when writing up the case summary -that has no legal status-the Court reporter, a former railroad president named J.C. Bancroft Davis, declared: “The defendant Corporations are persons within the intent of the clause in section 1 of the Fourteenth Amendment to the Constitution of the United States, which forbids a state to deny any person within its jurisdiction the equal protection of the laws.” But the Court had made no such legal determination. It was the clerk’s opinion and misrepresentation of the case in the headnote upon which current claims of corporate personhood and free speech entitlements now rests.

In 1978, however, the Supreme Court further entrenched the idea of corporate personhood by deciding that corporations were entitled to the free speech right to give money to political causes – linking free speech with financial clout. Interestingly, in a dissent to the decision, Chief Justice William Rehnquist pointed out the flawed 1886 precedent and criticized its interpretation over the years saying, “This Court decided at an early date, with neither argument nor discussion, that a business corporation is a ‘person’ entitled to the protection of the Equal Protection Clause of the Fourteenth Amendment.”

Tue, 03/05/2013 - 22:47 | Link to Comment OldE_Ant
OldE_Ant's picture

How quickly people forget.  While many people commonly believe the US revolution was against the British Crown in fact it was predominantly against the 'corporate colonies' the British Crown backed using force of arms.

Virgina, Massachussets, New York, Maryland, etc. were all corporations under the British Crown.   It was why virtually every colonial state and those that came after the revolution put into their state constitutions clauses which forced corporate charters to be fixed in length of time (usually no more than 20 years) and revokable at ANY TIME should said corporations carry out activites that are not in the best interests (or conflicting interests) of the people.

Everyone agreed a corporation should be allowed to make a profit, but not at the deleterious expense of the public good.  (and I'm not talking about a company producing a bad product, but one that carried out business that overall was bad for 'the public' vs. neutral).   The revolutionary people already had a bad taste in their mouths over the rampant corruption of these 'crown sponsored corporations and those that ran them'.  By forcing all corporate charters to be reviewed periodically it forced companies to be good 'citizens'.   At no time (in that time) would anyone have thought it would be good to give corporations the rights of citizens.  In fact it would have been thought to be ludricious/impossible.   In fact here we are.  Corporations are allowed to carry out horrific deeds against even actively fighting populace and are in fact preferred customers of governmental legislation, law, and politics simply because to the government it is ok to piss a few people off, but don't you dare mess with a single large corporate entity.

Go do the research.  A number of states still have active in their constitutions laws regarding granting of corporate charters, review of said charters, and clauses where charters MUST be revoked/reviewed.  Typically these reviews are supposed to be carried out by the secretary of state.   No longer will the state take on revoking a company charter because they will be seen as against business and capitalism, with potential liability should investors in said company sue for damages due to unforseen company charter loss and liquidation of assets.

It took almost 100 years for corporations to finally get most of these constitutional provisions 'overridden' or 'unenforcable without litigation' and so many of these laws still stand on state constitutions books but are simply unenforced.   Which goes to show exactly the state of affairs we are in.  It is no coincidence a lot of financial change began happening between 1885 and ~1895.  It was mostly because large corporations no longer had any fear of losing their charters because case law (up to supreme court) had already come in siding with the corporations and their 'shareholders' regarding such 'draconian measures' against these good and important 'corporate' citizens.

The lash back in politics ~1900 was pretty dramatic and led to parties and candidates who were 'anti-trust' seeking to break up the huge monopolies, but failing to powerfully resurrect and reinstate the corporate charter laws already existing in almost all states at the time.   We similiarly had the bogus IRS tax legislation, creation of FED shortly there after, etc.   In effect 'we the people' of the united states lost control over 100 years ago.  100 more years and this loss of control and rule of law have so permeated the fabric of society and the minds of men that we are most fully enslaved and ruled by the same power/hungry meglomaniacs we bled and died to overthrow the first time.

Full circle folks.  Want to cut the knees out from under the government, cut the knees out from large companies.  Start producing local, and buying local direct from same producers.  Simply refuse to give them your money.  When the monsterous companies start failing, this will pull down the political system that backs them.   Until the government tries to mandate where we are 'allowed' to spend our money and what we are 'allowed' to buy.  We STILL have the power to overthrow in our hands.    We simply have to want to use it.

 

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