Guest Post: The Politics Of Consistently Bad Legislation

Tyler Durden's picture

Via Brian Rogers of Fator Securities - Notes From The Sales Desk

“The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.” - Thomas Sowell


The EUR lives to fight another day

The big news this morning, aside from the relatively strong economic data out of the US (of course, we’ll have to wait for the downward revision on jobs to see the real number, which is an ongoing statistical aberration for the record books but anyway) is the news that the German parliament overwhelmingly passed the measure to support the EFSF.  In reality, this wasn’t really that newsworthy as passing this particular legislation had been expected since Germany originally agreed to the deal in principal earlier this summer.  This was not the leveraged, CDO^2 like structure that failed NY Federal Reserve President cum Treasury Secretary Tim Geithner had been pitching recently in Europe.  No, that idea has been dismissed out of hand and Mr. Geithner properly ridiculed for recommending that the already over-taxed European people be further Major Kong-style strapped to the ticking atom bomb that is the European banks’ leveraged balance sheets.  The vote today was widely expected, although the margin of victory at 523 for vs 85 against, probably was a bit of a surprise.  Still, Germany is only the 9th of the 17 countries to vote and pass the deal so there could be more drama as the situation changes daily while the 8 additional countries prepare their own votes.  It would be a surprise if the rest of the Euro nations don’t support the EFSF but in this unstable economic environment, anything is possible.


But assuming the rest of Europe proper agrees to the deal, much more attention will be focused on Greece, and indeed the rest of the PIIGS, to determine the serious nature of their intentions to enact austerity programs.  Already it appears that the ability for the Greeks to raise more in taxes is being questioned by none other than prominent Greek politicians.  Greek Deputy Prime Minister Theodore Pangalos was reported in the AP as saying, “I believe that the tax limits of Greek society have been exhausted. I would say they have been exhausted for some time."  So for those keeping score at home, the austerity measures in Greece, if ever implemented which is doubtful to say the least, will further shrink the Greek GDP at a time when debt is increasing at crushingly high rates while the ability for the government to increase revenues via raising taxes is effectively dead.  And the Europeans are working overtime to keep Greece from defaulting.  Uhh, yea.  Good luck with that.


The Political/Big Money Love Affair

I was speaking to a good friend of mine yesterday who works in medical sales.  This guy isn’t an econo-phile or Fed watcher, just a regular guy trying to keep his job and scrape together an honest living to support his wife and 2 daughters.  We were talking about real estate and why we’re in the mess we’re in.  In a previous life, I used to sell fixed income derivatives on mortgages and CDOs (forgive me Father, for I have sinned) so I had a particularly good seat ringside as the mortgage bubble was blowing and eventually burst. 


As I explained the incestuous relationship between the banking and political elite and how this relationship led to the unwinding of almost all of the decent financial regulation passed during the Great Depression, my friend became a bit incensed and asked, “How can politicians consistently support these bankers, even today, when the result of everything they’ve asked for has been disastrous for the average American?”  Good question, my friend, good question indeed.


In my opinion, it’s ridiculously simple.  You see, we live in the world of multi-million dollar election campaigns.  According to, the total amount of money raised in 2010 in all states for all candidates was $3.4bn.  During the Presidential election in 2008, President Obama raised over $745mm while John McCain only raised $386mm.  In other words, the Presidential election has become at least a $1.1bn industry.  And that number doesn’t include the major sums raised and spent by their competitors during the primaries.


The total for the 2007-2008 state and federal election cycle was $5.7bn.  And who were some of the largest contributors to this total you might ask?


·         #1, National Education Association (a union) - $56mm

·         #6, National Association of Real Estate - $28.5mm

·         #9, ActBlue (liberal policy Organization) - $23.1mm.


In general, the top 50 contributors consists of a lot of unions, Indian gaming, major corporations and industry specific special interests.  Do you think those organizations are giving all this money because they enjoy participating in the democratic process?  Hardly.  They look at this money as an investment and they expect a return.  If they think the Dems will win, they’ll spend slightly more on the Dems but still contribute to the Repubs and vice versa.


Making Politicians Dance

From the politician’s side, the math couldn’t be simpler.  According to, the winner of a seat in the House of Representatives will spend on average about $1.4mm while the winner of a seat in the Senate will spend about $9mm.  In other words, it’s all about the money.  If you don’t raise a large enough war chest, you’re dead.  If you don’t accept the special interest/lobbyist money, the other guy will and he or she will win.  Meanwhile, there are no term limits on either chamber so your incentive is to build your own mini-empire of power and influence by playing ball with the biggest money donors.  Perfect this formula and you can become furniture in Congress and stay there for decades.  Seeing as how most of the folks roaming the halls of our Congress are the kind of people who never met a mirror they didn’t like, the thought of being a major power-broker in DC is too much to resist.  Big name committees, non-stop TV appearances, book deals, VIP invites to all the big DC events, etc...  The upside to taking lobbyist money is huge while the downside is you lose and return to obscurity.


So let’s recap, there are very few limitations to the amount of money and favors that can be given to politicians by large corporations, unions, special interests and wealthy individuals.  Because of the influence this money buys, these donors guarantee themselves a special place in the candidate’s heart and mind.  This is their hook, money.  On the other side, you have a class of politicians more than happy to sell out for whomever offers the most money to ensure they can keep winning their office over and over and over again as we have no term limits on Congress.  And because we don’t cap the amount of money a person can spend on election campaign, it largely becomes a contest of whomever raises and spends the most wins.  Not always, but typically.  Thus, we have created a political class that only serves itself and its clients’ narrow interests and rarely considers the greater good.  And we wonder how the American dream got killed.  You tell me the incentives inherent in any system, and I’ll tell you how the humans in that system are going to behave.


A Modest Proposal

Is it really that hard to understand why our politicians (and frankly those of many European nations) have consistently voted for legislation that gutted the economic value of our countries in favor of bankers?  As Deep Throat told Woodward and Bernstein, “Follow the money.”  If we really want to reform our political and economic institutions, the recipe is simple:


1.       Term limits.  1 term, 2 terms, 3 terms or something else, but limit the amount of time ANY person can roam the halls of Congress.

2.       Campaign spending limits.  The max you can raise to run for the House of Representatives should be equal to some easy to define number.  Say 10x the average salary of all state workers.  That would mean that someone running in my home state of NM could spend about $440k while a candidate from a higher income state like New Hampshire could spend around $650k.  Allow the candidate to accept that money from any source he or she likes and in any size, but make them publish the details of where they got the money.


As long as we keep the current system in place, we should not expect a political culture dramatically different from what we have today.  Perhaps the donors will change a bit over time and the issues du jour will mean sometimes the Dems win, sometimes the Repubs win, but the system from the perspective of a DC insider will stay the same.  Lobbyists win, Americans writ large lose.


Low Interest Rates Forever

What does the political rant above have to do with economics in general or Latam specifically?  Everything.  In case you haven’t noticed lately, the market doesn’t move on good or bad earnings or economic data, it moves on political rumors and innuendo about government’s willingness to continue the TARP/cheap money/QE lifeline to the terribly over-leveraged banking sector.  It’s especially troubling when you consider the faith most members of Congress place in Ben Bernanke and the other Oracles of Delphi at the Fed.  One area that’s going to come home to roost very soon is the zero interest rate policy (ZIRP) that has been in place since late ‘08/early ’09.


Simply stated, investors in any maturity of US Treasury bonds are currently receiving a negative real return.  Now for the speculative money, this might not be too bad given the much more negative returns of the stock market recently but for traditional buyers of long-dated fixed income that have long-dated asset return hurdles to meet, this is a disaster.  Pension funds, insurance companies and other players that must meet a certain growth hurdle rate, say 5-8%, are falling dramatically behind their actuarial goals.  This means regular folks are again going to be given the shaft for the failings of our Fed’s monetary policy.


The problem for the Fed and government, however, is that with the enormous size of our national debt at about $15tr (thanks again special interest crew), we can never again allow the bond market to function without the Fed prepared to buy bonds at the slightest sign of distress.  Again, simple math.  If the average rate the government pays on its debt rises to 5%, which is less than the long-term average of between 5.5% and 6%, then the interest rate expense we’ll pay on an annual basis will be $750bn, an amount comparable to the entire Dept. of Defense budget.  Remember, we bring in about $2.2tr in revenue via taxes.  If we have to pay $750bn or about 34% of total revenues on nothing more than interest on the debt, we’re toast.


The White House, the Fed, the Treasury and a few members of Congress are aware of this but most in DC remain blissfully ignorant of this fact.  Bottom line is this: QE does not exist for the banks or the economy or any other excuse uttered by PhDs at the Fed, it’s about keeping borrowing costs low for the US as we simply can never afford to have high rates again or our credit and thus economic system will collapse.  Monetizing the debt – it’s not your grandfather’s Federal Reserve Bank!


Meet the New Boss, Same as the Old Boss

Therefore, our conflicted, bought-and-paid for politicians will continue to support the Fed because it is literally the only institution on the planet capable of keeping interest rates low.  Low interest rates are the only thing that allows the US Treasury to continue to issue hundreds of billions of new bonds each month that will only be paid back in devalued dollars to fund wasteful spending we can’t really afford.  Spending that flows to all of the large political donors in Washington’s quid pro quo style.  The “success” of keeping interest rates low keeps the same kind of political “Yes” men and women, folks who will gladly do what they are told for the right dollar amount (which conjures up a much more pejorative term to describe their actions but this is a family audience), returning to DC on a regular basis.  Which of course keeps our country subjected to the politics of big money, a “for sale” political class and bad legislation.


Reform the election system and we have a chance of changing the thinking and thus institutions in DC that our ruining our lives.  Keep the system as is and get ready for the Great Reset.  In fact, even if we do change the system with the debt we have, it may already be too late to avoid the Great Reset but at least we’ll have better personnel in DC to clean up the mess.




* Fator Securities LLC, Member FINRA/SIPC, is a U.S. entity and a member of the Fator group of companies in Brazil. The comments below are from Brian Rogers, who is employed by Fator Securities (Brian’s opinions are his own and do not constitute the opinions of Fator Securities or the Fator group of companies).


Fator Securities LLC is not affiliated with Zero Hedge or any third party mentioned in this communication; nor is Fator Securities LLC responsible for content on third party websites referred to in this communication.


This material was not prepared by Fator Securities LLC. U.S. Persons seeking further information must contact Fator Securities LLC in New York at (646) 205-1160. This material shall not constitute an offer to sell or the solicitation of any offer to buy (may only be made at the time qualified participants are in receipt of the requisite documentation, e.g., confidential private offering memorandum describing the offering, related subscription agreement, etc.). Securities shall not be offered or sold in any jurisdiction in which such offer, solicitation or sale would be unlawful or until all applicable regulatory or legal requirements of such jurisdictions have been satisfied. This material is not intended for general public use or distribution and is intended for distribution only to appropriate investors. The opinions contained herein are based on personal judgments and estimates and are, therefore, subject to revision. Past performances are not indicative of future results.

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Long-John-Silver's picture

SSDD Bitchez!  (Same Shit Different Day)


arizona11912's picture

SSDD all in preperation for Euro bond.....

Manthong's picture

"incentives inherent in any system"

Fear is a powerful incentive.. there needs to be at least as much of it in the minds of the politicians as there is in the minds of the electorate whose livelihoods they are destroying.

Cliff Claven Cheers's picture

News to expect in the coming days and weeks:

The Germans announce they are re-introducing the Deutschmark. They have already ordered the new currency and asked that the printers hurry up.

mayhem_korner's picture



Why are markets trading on what the governments do?

Why is money involved in legislation?

What's my Delta Tau name?

anynonmous's picture

second contributor today to suggest that CDO^2 is a non starter

Might I suggest that the writer not confuse the universal disdain for Geithner with the fork tongued rhetoric from Merkel, Scheuble  et. al.  It's not that they don't appreciate that CDO^2 puts them beyond the fail safe point it's the fact that they are already beyond it.  Make absolutely no mistake CDO^2 is next up. 


This was not the leveraged, CDO^2 like structure that failed NY Federal Reserve President cum Treasury Secretary Tim Geithner had been pitching recently in Europe.  No, that idea has been dismissed out of hand

NotApplicable's picture

They're gonna have to square it again, and again, and again...

If only they can achieve infinite leverage, we'll all live in ZIRP Nirvana.


HpDeskjet's picture

Nope. You (and many other people) forget 1 thing that's completely different in EU compared to US => In US, Treasury/Central Bank/Politics/Banks/Large Companies are fully connected and almost interchangeable terms. Hence, no debate is needed to change an "inconvenient" law, to print money to benefit these groups, to rape the middle class etc. In EU nothing can be accomplished since all these groups fight each other both within and between countries. There is only one way to get Europeans on the same train and make the same Keynesian mistakes that US is making => disaster(s). If the CDO^2 will be constructed at all, it will be way too late.

jdelano's picture

Try this. Go to Germany. Pick the hottest girl at the bar. Ask her if she wants to have sex. If she says no, proceed to try and pin her down and have sex with her. Try this. Then come back here, tell us what happened and whether or not when a German woman says "absolutely fucking not' what she really means is "yes".

anynonmous's picture

above comments (excluding my own)  show a remarkable lack of understanding of German politics.  Read yesterday's results and then compare and contrast to what the pundits had to say and what the lovely Ms. Merkel and herr Scheuble had to say.  The German political class have forgotten more about corrupt deceipt than their Yankee counterparts have ever learned.

Gohn Galt's picture

Once Eurowide taxes are initiated, forever a piece of it will remain.

You can buy laws, just not fair laws.

Have any Americans looked into how much money and what steps you would have to take to not be subject to US taxes.  I think if you did you would be surprised and that you may feel more indentured servant than a free citizen.  But what is freedom?

mayhem_korner's picture



All legislation, and all wars, are about allocation.



And who'll deny it's what the fighting's all about

fuu's picture

I dunno why but your comment reminded me of this:

Ruffcut's picture

Sooner or later, most sheeps' will get that politics is complete grandstanding bullshit.

These shitbags thank their lucky stars for lower days of "asscovering".

Remember when asked to send tea bags to congress? I thunk it better to send them a diaper, instead.

Melin's picture

Wow, did someone mug Tyler?  So many posts today seem to cheer ever-more government regulation, limit free-speech via campagne contribution size, cheer the anti-capitalists on Wall Street.  What gives?  



The4thStooge's picture

anti-capitalists? are you fucknig kidding me? they're protesting the current system. if you think the current system is anything remotely resembling capitalism, you are living in a dream world. you took the blue pill didn't you?

Melin's picture

I think our current system is far from capitalism but my understanding of the protestors desire is certainly not a clamoring for laissez-faire.

What is this blue pill you speak of with such contempt and bad manners? 

flacon's picture

< whispering >Hush you two. You are both agreeing with eachother.  < / >

narnia's picture

money didn't flock to politics when the federal government lived within its constitutional scope.  the US didn't have a Federal Election Commission in 1910 & we didn't need one.

it's not the money that changed the scope & function of government.  it's the government changed its scope & function, and the money flocked to it.

bxy's picture

We also didn't have a fiat money system, the fed, or an income tax.....not a coincidence.

Piranhanoia's picture

I wonder when the government starts going after those sedititious bastards that tell the truth about the state of the chaos they are setting us up for?   Sorry, forgot where I was for a minute

Sambo's picture

Fantastic article. It should be sent around on the net in viral mode...

lynnybee's picture

pre-planned, deliberate, well-thought out & secretive, treason at the highest levels of government & theft at the highest levels of shareholders of the FEDERAL RESERVE BANK :

    Whatever happened to this mind-set, this patriotic way of thinking ?    

slewie the pi-rat's picture

the mind-set is still around, but not too widespread

a lot of ideologues;  this author wants election finance reform.  mike kreiger put a piece  about rebellion in america and it must be part of the fourth turning...;  we must be told who we are, what we are for and what we are against, and how to rebel and fight for what is right...blah blah blah

stay within yourself linnybee, enjoy the day, and don't take any wooden nickels! 


Rainman's picture

Shocking ..... didn't Obama say he got most of his '08 campaign mega millions from the little people a few bucks at a time....?? I'm confused.

lynnybee's picture

shocking ?   Obama outright lies, he has familial ties to the C.I.A. (do your research on the net) & he was put in place to deliver his constituents into debt bondage.    don't be shocked !

SeanJKerrigan's picture

We shouldn't be afraid to dream bigger than this.  Supporting Dylan Ratigan's ammendment only sounds crazy undoable until you remember we're in the fourth turning... and ANYTHING is possible.

By the way, if you haven't signed that petition yet, consider doing so:  It only takes a minute and is well worth the emotional satisfaction you'll feel having done something, even something very small.

To quote GK Chesterton: "You have not wasted your time.You have helped save the world. We are not buffoons but very desperate men at war with a vast conspiracy."

samsara's picture

A modist proposal

1.  Recind 'Corporation = Human' in court of law

2. Corporation cannot support spend on or corrupt a public official.   Make bribing a public official = getting caught with a pound of heroin.

1. Elected offical only gets paid for the years he/serves.

Salary of retired US Presidents .............$180,000 FOR LIFE

Salary of House/Senate ...................$174,00?0 FOR LIFE 

Salary of Speaker of the House ............$223,500 FOR LIFE                  Salary of Majority/Minority Leaders ...... $193,400 FOR LIFE  
BetTheHouse's picture

Yes. Very modest, particularly as it relates to the facts.  Members of Congress do not receive a salary for life.  And bribing a public official -- which by the way, is shockingly rare -- is already subject to approximately the same punishment as posession of a pound of heroin. 

WonderDawg's picture

Bribing a public official in our current system is thinly disguised as a campaign contribution.

Tic tock's picture

The POINT is 'to what extent you can leverage an unlimited balance sheet in setting i% policy'. The architecture works as a system of checks and balances, already we are in a Gold economy. This is not helpful, frogs will start raining.


disabledvet's picture

First off the vote in Germany is a big deal precisely because it's a huge vote of confidence in the Chancellor and for German leadership during this crisis in general. What actions will be taken I agree are uncertain as there appears a genuine conflict in Germany itself about the cost of bailing out their own banks let alone French one's as well. I certainly agree with the Treasury Secretary that it is absolutely critical that these banks continue to be backstopped whatever happens with Greece since the failure of these institutions will end any help to Greece in general and obviously will have deleterious consequences to certain instituions here in the USA. That does include Bank of America. That does include Goldman Sachs. Inosfar as "ridiculous laws on the books" they are legion. Perhaps we can start with the Kellog/Briand pact which outlawed war in the late 1920's and work our way back then?

Ultros88's picture

In other (old) news:

Might particularly want to read the caption(s) for the two bottom left photographs.


tick tock....

mikmid's picture

we are fucked!

Snakeeyes's picture

And look what is has begat. Our economic growth trend looks like the movie Independence Day (cycling to zero before the attack).

Vendetta's picture

The market 'moves' when the "market movers" move it.