Paper Companies' Windfall of Unintended Consequences 284
Jamie found a post on ScienceBlogs that serves as a stark example of the law of unintended consequences, as well as the ability of private industry to game a system of laws to their advantage. It seems that large paper companies stand to reap as much as $8 billion this year by doing the opposite of what an alternative-fuel bill intended. Here is the article from The Nation with more details and a mild reaction from a Congressional staffer. "[T]he United States government stands to pay out as much as $8 billion this year to the ten largest paper companies.... even though the money comes from a transportation bill whose manifest intent was to reduce dependence on fossil fuel, paper mills are adding diesel fuel to a process that requires none in order to qualify for the tax credit. In other words, we are paying the industry — handsomely — to use more fossil fuel. 'Which is,' as a Goldman Sachs report archly noted, the 'opposite of what lawmakers likely had in mind when the tax credit was established.'"
Law from 2005 (Score:5, Informative)
It wasn't mentioned in the summary, but the tax credit was passed in 2005. So no one thinks the $8 billion is related to stimulus packages passed more recently.
No, those will cost us a lot more when companies figure out how to fraud them.
Re:lawmakers (Score:5, Informative)
Doesn't matter. Precedent from the Supreme Court states that the IRS has sovereign immunity and cannot be sued on any issue within it's own domain.
Re:Government interfearence screws up everything (Score:3, Informative)
You didn't actually read my post did you?
Deregulation (Score:3, Informative)
You mean the kind of deregulation where a central entity whose management is appointed by the president determines the money supply and a lot of the interest rates?
We haven't had deregulated banking since 1913 [wikipedia.org]. All we did was change one regulatory regime to another, which arguably allowed more abuse.
Re:lawmakers (Score:2, Informative)
You want to know what a lack of sensible regulation and control gets you - look at the current financial troubles your country has caused.
http://www.google.com/search?hl=en&q=community+reinvestment+act [google.com]
http://www.google.com/search?hl=en&q=federal+reserve+act [google.com]
http://www.google.com/search?hl=en&q=fractional+reserve+lending [google.com]
http://en.wikipedia.org/wiki/Fannie_Mae [wikipedia.org] The Federal National Mortgage Association (FNMA) (NYSE: FNM), commonly known as Fannie Mae, is a stockholder-owned corporation chartered by Congress in 1968 as a government sponsored enterprise
http://en.wikipedia.org/wiki/Freddie_Mac [wikipedia.org] The Federal Home Loan Mortgage Corporation (FHLMC) (NYSE: FRE), known as Freddie Mac, is a government sponsored enterprise (GSE) of the United States federal government
How strange it is to see a crash caused entirely by government intervention in the market continually touted as a "failure of capitalism" and blamed on a lack of regulation.
Fractional reserve lending backed by government edict (whether you think it is a good idea or not) creates the situation where the ongoing money supply is dependent on peoples ability to repay loans. The Community Reinvestment Act required lending institutions to make loans that would ultimately not be repaid. How any of this could be seriously accepted as the result of a lack of regulation is one of the most outstanding achievements of propagandists of all time.
Shenanigans! (Score:3, Informative)
Oh, really? Not according to the US government. http://www.epa.gov/climatechange/emissions/usinventoryreport.html [epa.gov] Paper doesn't even show up, and all of the "industrial" processes (as opposed to home heating, electricity generation, and transportation) make up less than 7% of US emissions, so paper-making is barely a roundoff error. I'm not arguing that the paper companies aren't taking advantage of a loophole, but to suggest that this is having any meaningful impact on emissions one way or the other is ludicrous.
Re:lawmakers (Score:4, Informative)
I won't argue with your distaste of the Federal Reserve, Fannie May, or Freddie Mac, but I want to make a few points about regulation and government intervention.
The great majority of sub-prime loans made were not made under The Community Reinvestment Act.
The sub-prime loans made under the Community Reinvestment Act have a lower default rate than those made outside of its' purview
Too much regulation did not cause Fannie May, Freddie Mac, and others to overvalue their portfolios.
Too much regulation did not cause the ratings companies to give the securitized mortgages high ratings greatly understating their risk.
Too much regulation did not create the credit default swaps without enough reserve to pay them off in case of a bad economy, nor did it cause the companies selling those to insure their credit default swaps with more credit default swaps from another company that also did not have enough reserve to pay them off.
Too much regulation did not cause the ratings companies to rate the companies holding credit default swaps with insufficient backing AAA even though they could not pay off their obligations in case of default.
Contact IP and voice your concern (Score:3, Informative)
This page [ipaper.com] is International Paper's feedback form. Tell them how you feel about this.
In addition to that, let your Congressional representation know too--OK it's Congress, but it might help anyway.
Re:lawmakers (Score:1, Informative)
As a Canadian, may I respectfully disagree? All of our major banks are solvent; in fact, our largest five banks all rank within the top 50 safest banks in the world, according to a study done by World Financial Digest. While some individual Canadians may have invested in CDO's, CDS's, and Bernie Madoff's "funds", our major institutions have little or no exposure. Our wheat still grows, our trees are still logged, and our oil wells still pump. Where are we being screwed? In the auto sector, where US problems flow across the border; in our softwood, paper, and logging sector, where both US protectionism and flagging demand flow across the border; in our tourism sector, as US visitors (by far the majority) can no longer afford to take vacations anywhere, let alone Canada, so your problems again flow across the border.
While the US government was racking up record deficits, Canada was paying down its debt under both Liberal and Conservative governments. The current government was able to pay down debt AND reduce the national sales tax from 7% to 5% until the US financial system imploded. Now we're back in deficit mode, thanks to you.
And, while off-topic, an often-thrown insult to Canadians from the US is that the US does all the fighting. Well, here is a relative comparison, using Canada's 33 million population as a base:
Population: Canada:1 UK:2 US:10
Afghan deaths: (actual) Canada 116 UK 152 US 677
Seems to me that Canadians are doing more than their fair share of the fighting and dying in Afghanistan.
So, as I said in my opening, I respectfully disagree - if the Canadian economy is in the shitter, it is very much due to external events which mostly occurred in the US. On behalf of my countrymen, may I say "F*** you very much"?
Re:lawmakers (Score:3, Informative)
Your assertion is:
The government ordered lenders to loan to people with bad credit ratings, no stable income sufficient to repay, and without any deposit.
This is prima facie false. Unscrupulous and unethical lenders began issuing loans to people manifestly unable to handle the repayment. They did this to make money. They did this because of the republican-championed deregulation efforts. Regulations would have prevented the massive numbers of foreclosed mortgages, because the people being foreclosed on would never have taken a mortgage. The resulting death-spiral of the world economy wouldn't have occurred, and the people who normally could afford the sensible mortgage they'd taken wouldn't have lost their jobs and joined the ranks of the homeless.
Further, you claim that the root cause of all this is a common-sense accounting rule. Over a year ago, former FDIC chair William Isaac championed this idea. This is nonsense. The root cause is the banks foolishly dabbling in unstable mortgages to make a quick buck. It doesn't matter what accounting method you use, if you invest heavily in any high-risk market, you stand a chance to lose your money. It doesn't even take Econ101 to know that.
Re:lawmakers (Score:3, Informative)
Incompetent lawmakers are incompetent.
As someone who has been a regulator, that attitude is, quite frankly, ignorant. Lawmakers are politicians, with that associated baggage, but in most case are neither incompetent nor ignorant. And most of the time, surprisingly, they come out with well-intended and thoughtful legislation. Not always, but much of the time. What they can get past industry lobbyists trying to help write the legislation.
Once they cross that hurdle the laws go to the appropriate regulatory agencies where industry gets another bite at the political apple by pressuring legislators to encourage the regulators to implement the regulations in the most industry-favorable manner possible.
If by some miracle of decency, a regulation gets past all that pressure, then industry will hire consultants to analyze the regulations and then start playing the Consistent Application Game. Where consultants will offer a weak solution and demand regulators tell them what they have to do to be in compliance. Always aiming for the absolute minimum and constantly coming back with, "Can we do this?" and "Can we do that instead?" They'll go from department to department trying to find a more favorable interpretation. When they find it, they'll circulate that out to everyone and all of a sudden the lower compliance standard is suddenly the new norm. They'll stall, drag their feet, file spurious court actions which they know states and municipalities are ill-equipped to fight. And, they'll find loopholes, or imagine loopholes, and wait until the regulatory agency gets a judgment that they're wrong maybe three or four years later, at which time they go back and start saying big fines will cost the state jobs and the money would be better spent on compliance. Even if they lose, they'll start trying wiggle out of any real responsibility.
Because, right now, there's no real downside for them getting silly trying to game the system. If there was say, jail time for the execs, that would clear up the silly business pretty fast. Short of that, what I'm describing is the reality of the regulatory environment at the state and federal level. Throw in a few genuinely corrupt politicians in the pocket of those same industries who calls and regularly rips on the agency head and you have a tough job enforcing the simplest of regulations.
But how would you know that when you don't have to reach any farther than your butt for conventional wisdom?
Re:lawmakers (Score:4, Informative)
This "loophole" has existed and been blatantly abused for many, many years. These paper mills are not even close to the worse abusers. The worst one I heard about, and this was years ago, was factories that sprayed a light mist of diesel on coal to claim this tax credit.
This tax credit should just be ended, not fixed.
Re:Shenanigans! (Score:2, Informative)