Eric Harrington – The Corporate Protection Racket (or why the government is powerless to refuse bailouts and subsidies.)

Wall Stree Gangsters

Wall Street Shakedown

For centuries and long before illegal drugs became THE big moneymaker for organized crime, there were three primary sources of Mob revenue: Prostitution, Gambling, and Protection.  Of these three “businesses” in mob vernacular, Protection was far and away the most profitable because every business was a potential “customer.”   Basically the Protection business works like this:  the gangster attacks one of the businesses in the neighborhood. Could be a mysterious fire, an assault, a robbery, it doesn’t really matter.  Then the gangster goes to all the neighboring establishments and offers them “protection” for an on-going fee, often as high as 10% of gross receipts.  That’s the game– you sell them protection from you.

In the last few decades, law enforcement has all but eliminated the traditional protection scams of old, with the gangsters simply transitioning to illegal drugs and petty larceny and gambling.  But over the last 30 years or so, a whole new form of the protection scam has evolved – that of the corporate bail-out and/or subsidies.

The greatest protection scam ever perpetrated happened just a few years back, and was best know as the banking and credit bailout or TARP.   Contrary to the story told by the banks, the credit supply in the country was never really a problem.   It was intentionally squeezed by the banks to pressure the government to pay the extraordinary bailout. The banks were able to get away with it because the government (through the lack of, and poor execution of existing regulation,) had let the banks get into extremely dangerous capitalization situations. The banks basically said, “We can’t accurately guage the value to the toxic mortgage assets we hold, so under the minimum federal banking capital requirements we have to stop loaning money.” But this was a choice–they had already been stretching those rules to the limit and often grossly exceeding them for years.  But suddenly, literally on one Monday morning they stopped loaning money, and claimed it was in an attempt to obey the capitalization rules.  But in reality, it was a shake down, plain and simple, for the economy ground to a halt and was set poised of the precipice of collapse if they didn’t begin to loan money again. They held our economy hostage. Sadly, all the government really had to do was relax those capitalization requirements for a period of time, and they could have avoided the supposed cause for bailout completely, but the bought and paid for congress completely ignored an actual bill to that effect presented to the house by an Oregon Senator, and instead, like a panicked parent of a kidnapped child,  they moved swiftly to pay the extortion money to the tune of 700+ Billion dollars. It was without question, the biggest shakedown in the history of the world.

There is a another on-going shakedown called Oil subsidies. Everyone screams that we shouldn’t be paying the oil companies billions to drill for oil, which should be the core of their business.  And that is absolutely correct in a moral world.  But in reality,  there is no law that can REQUIRE oil companies to drill, and they have no incentive to do so because it is not to their economic advantage. The oil companies make more profit not drilling because it drives the price up and allows them to sell us the same amount of oil for increasingly more money,  and subsequently more profit for doing the exact same work.  Profits go up, operating costs stay the same. Its a capitalists dream.   Drilling is expensive and risky. Raising prices is not.    Hence we basically have to pay them to drill.

Is this fair? Of course not, but it is reality.  And there is only 2 ways we can win in this core resource monopoly.   One is reduce our oil purchases as the prices go up, thus minimizing the increase in their profit, and forcing them to increase supply to see growth. Or we the people (ie the government)  have to drill for the oil ourselves.  Clearly the first choice will NEVER happen in our SUV addicted country.   So we are left with no option but to drill.   And why not? Why can’t the US government just invest those subsidies into drilling instead of paying the gangster oil companies to do it?  Because that is verging on socialism of course and will put the average tea-bagger into apoplectic shock.

But the real question is, why not completely socialize such resources? One perspective could easily suggest that oil and gas resources should belong to everyone since the oil is spread over large large areas underground,  and it is virtually impossible to license  from own all the land holders  over it. Countless millions of people own land above oil that is being pumped, and they are not seeing a dime from it.   They are often not even aware there are separate rights to the ground beneath their feet.    So where is the benefit to private ownership of resources like oil, natural gas, and water? More importantly, what is the benefit to the populace though competition in such ownership?  Granted, oil companies might be able to improve the oil extraction and delivery processes under normal free-market competition, but what good is it to us,  if they refuse to drill because they make more money keeping oil supplies constrained?   The monopoly created by the huge cost involved in oil exploration is the very reason the Government must create real competition.  We don’t have to socialize it, just compete.  The same argument that justified the government providing a competitive healthcare insurance plan, works for oil. IT KEEPS THEM HONEST.  AS for the stock holders, in this oil company, as Americans, we would ALL own stock..

Pay them or do it ourselves, they are the only options. Or possibly create some exotic law that requires them to spend a certain portion of there profits on exploration, but that as with most regulations, it would give the oil companies just another incentive to move their operations to tax free havens, if they haven’t done so already.  No, it seems to me the simplest solution is to compete with them. If the government can’t do anything right as every Republican claims, then the Oil companies shouldn’t have anything to worry about.

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~ by Eric Harrington on May 20, 2011.

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