Is The CBO Merely Another Manipulated Front For Wall Street To Dictate Washington Policy?

Tyler Durden's picture

In the past, when discussing the goalseeking C-grade excel jockeys at the Congressional Budget Office (or CBO), we have not been technically full of reverence. After all when one uses a phrase such as this one: "What do the NAR, Consumer Confidence and CBO forecasts have in common? If you said, "they are all completely worthless" you are absolutely correct", it may be too late to worry about burned bridges. We do have our reasons: as we pointed out last year, following the whole US downgrade fiasco when the Treasury highlighted the CBO's sterling work in presenting a US future so bright, Timmy "TurboTax" G had to wear shades, we said "according to the same CBO back in 2001, net US indebtedness in 2011 would be negative $2.436 trillion, the ratio of debt held by the public to GDP would be 4.8%, total budget surplus would be $889 billion, and GDP would be $16.9 trillion." As we know now they were off only by a modest $17.5 trillion on that debt forecast. Yet we never attributed to malice and bias and outright corruption, what simple stupidity and gross incompetence could easily explain. Until today that is, when following a WSJ article, we are left wondering just how deep does the CBO stench truly go and whether its employees are far more corrupt than merely stupid?

As a reminder, the CBO is "a nonpartisan arm of Congress—employs analysts and economists who are charged with trying to estimate the potential financial impact of proposed policies and legislation." So far so good - they also happen to be beyond worthless at their job, and if they were in the private sector they would be fired with extreme prejudice. Of course, they are government workers, so anything goes. Which is where the problem arises: because while as the WSJ says, the CBO should be impartial, it turns out it is anything but.

Republican staffers on three Senate committees are pressing a congressional office that scrutinizes federal budget issues and proposed legislation over how its assessments are compiled. The inquiries of the Congressional Budget Office, which haven't been made public, concern the CBO's analyses of some of Washington's most complex and controversial measures, including bills on financial regulation, health care, small-business lending and efforts to aid the housing market, said people familiar with the matter.

 

As part of the inquiries, some Republican committee staffers are examining whether CBO officials adequately monitored and disclosed the role of Wall Street banks, academic researchers with government ties and other outside advisers, the people said. They are pushing for greater transparency in the CBO's dealings with advisers, to shed light on the role of outside interests in shaping the office's views, the people said.

Realistically, it is true that the CBO can be the target of either party if and when its conclusions do not resonate with proposed policy.

The CBO regularly comes under fire from members of both political parties—particularly when their goals for proposed legislation are undermined by the agency's analysis. It is "an easy target" because of its role in shaping legislative debates, said John Wonderlich, policy director for the nonpartisan Sunlight Foundation, a nonprofit focused on government transparency. He said the CBO should be more open with the economic models it uses, and should produce documentation detailing its use of outside advisers. "That oversight is entirely appropriate," Mr. Wonderlich said.

... As is precisely the case now:

Republican Budget Committee staffers are questioning the CBO about disclosures of details related to projected costs of health-care legislation and broader economic policies, say people familiar with the matter. People close to the matter say the CBO in recent months has resisted efforts by Republican staffers to obtain documents and communications stemming from the office's views on a long-term care provision. Administration officials in mid-October declared the provision not viable, after previously supporting it.

 

"The Budget Committee has been engaged in routine conversations with the Congressional Budget Office over how best to estimate the fiscal impact of the President's health law," and hasn't been pursuing an inquiry into the CBO's "professional conduct," said a spokesman for the committee's Republican staff.

So far so good: incompetence, with a dose of politics, explains all of the above.

Yet what is not explained anywhere is the following revelation:

In another inquiry, investigators working for Sen. Charles Grassley, the top Republican on the Senate Judiciary Committee, are probing allegations made privately to the investigators by a former CBO economist that she was fired for producing work at odds with Wall Street research favored by her supervisors, according to people familiar with the matter and documents related to the inquiry.

 

The ex-employee, Lan T. Pham, alleges she was terminated after 2½ months for sharing pessimistic outlooks for the banking and housing sectors in 2010, according to correspondence and other documents related to the inquiry, reviewed by The Wall Street Journal, and her lawyer, Gary J. Aguirre. Ms. Pham, 40, alleges supervisors stifled opinions that contradicted economic fixes endorsed by some on Wall Street, including research from a Morgan Stanley economist who served as a CBO adviser. As part of the review, Sen. Grassley's staff is examining whether Wall Street firms or others exert influence that compromises the office's independence, say people familiar with the matter.

And here we were thinking that only John Paulson fired his analysts for being too bearish (true story). But that is not the issue: what is most troubling is if indeed the CBO is nothing but merely another front for Wall Street to work its propaganda magic on the administration. Because at the core of every policy are numbers, usually with dollar signs in front of them, numbers which have to make sense and have to be projected into the future, no matter how grossly laughable the resultant hockeystick. And it is only logical that the grossly incompetent CBO "analysts" will lick the boots of Wall Street's "strategists" only to get a glimpse of those complicated (if also utterly worthless models: remember that Goldman call for a new US renaissance by Jan Hatzius in December 2010, roundly mocked by Zero Hedge, and which even Goldman subsequently apologized for?) models which always paint a rosier picture, as is necessary in a ponzi scheme which, like a shark, must always be moving, every higher, or else the house of cards collapses. It also means that Wall Street's means of peddling influences are far more insidious than originally thought, and that they have penetrated the very number crunching machinery that while merely a front, is a critical component of every legislation.

Alas, none of the above is surprising: just like the SEC, where the dregs of the analytical and legal world end up, praying that one day the very people they prosecute will hire them (at a salary multiples higher than what they get paid currently), so the CBO workers will do all in their power to come up with some results which appear at least modestly objective yet are entirely driven by neither the Democrat nor Republican agenda, but that emanating from the financial region in New York.

And just to put a final nail in the objectivity of anything to have come out of the CBO in the past decade, and probably ever, here is another chart by John Lohman which shows that just like the BLS, which probably also one day will be discovered to get its financial "tips" from Wall Street, the CBO does nothing better than hope for the best, and prepare for the even better.

Finally anyone wishing to listen to the boss of this latest infiltrated by Wall Street political organization stammer, can do so tomorrow: "Mr. Elmendorf will testify at a Senate Budget Committee hearing Thursday on the budget and economic outlook." We are quite confident he will have only glowing things to say about the future.