Financial Superfund?

 

In its efforts to clean up the finance sector’s toxic waste dump, the House Finance Committee has apparently taken a page out of the environmentalist playbook.

 

The Obama administration and the head of an important House committee unveiled legislation on Tuesday to give the government broad new powers to shift the cost of rescues of big, troubled financial institutions from taxpayers to other large companies.

The new legislation was drafted jointly by Treasury officials and Representative Barney Frank, the head of the House Financial Services Committee.

The legislation, drafted jointly by Treasury officials and Representative Barney Frank, the head of the House Financial Services Committee, would create a special fund, paid by assessments on financial companies with more than $10 billion in assets, to bear the costs of big firms that fail.

A statement by the committee said that the legislation followed a “polluter-pays model where the financial industry has to pay for its mistakes — not taxpayers.”

Assessments on those companies would be made only after the collapse of a large institution, and the legislation gives the government authority to levy such payments over an extended period.

 

“Polluter pays” sounds very good. It’s one of the core environmental policy principles, and not just environmental policy either.

 

Indeed I thought immediately of the Superfund polluted-site clean-up law.

 

The Superfund program was launched in 1980 in the wake of a national tragedy that unfolded at Love Canal, N.Y. Lois Gibbs, a housewife-turned-activist who would come to be known as the “Mother of Superfund,” discovered that her family’s and neighbors’ sickness could be traced to toxic waste buried underneath her hometown decades earlier by Occidental Petroleum Co.

Initially, the program was funded by a tax on polluters, which fed the actual “Superfund,” a pool of money used to pay for the cleanup of sites whose polluters were unknown or unable to do the work.

 

The law started out well. The tax was collected, a trust fund built up, the money was fruitfully used. (And all of this under Reagan and Bush no less.)

 

But then what happened?

 

But the tax law expired in 1995, under a Republican-controlled Congress, and the $3.8 billion that had accumulated in the fund at its peak ran dry in 2003.

The program is now funded with taxpayer dollars and money that the EPA manages to recover from polluters for work the agency has done at their sites.

But Superfund’s budget has not kept up with inflation. In 1995, the program received $1.43 billion in appropriations; 12 years later, it received $1.25 billion. In inflation-adjusted dollars, funding has declined by 35 percent.

 

The Superfund law was well-crafted. It had a practically simple and morally sound funding mechanism. Its procedures were clear and it worked well in practice.

 

Until, that is, the political equation adversely changed even a little bit. It seems that given all the political dependences it has, and where it’s up against a clear and present structural danger, regulation is a frail thing.

 

Now let’s look at this proposed financial Superfund. It’ll tax companies to clean up the pollution spewed by their sector. Yet this assessment will come only after the toxic drums leak into the groundwater?

 

We already know from the first Superfund that even preemptive taxation won’t work in the long run, that it’ll eventually be gutted.

 

And here they’ll only try to tax after the explosion? Where presumably everyone will be stressed and maybe in a panic? Where the disaster capitalists will be on the prowl? Where the heads-I-win-tails-you-lose ideology will be screaming “you can’t tax now, when we’re in the midst of the crisis!”

 

That’s too thin. They can’t really be serious about this.

 

Just more fig leaves and misdirection. It’s not supposed to actually ever work. This tax is not supposed to ever actually be collected (otherwise they would be truly precautionary and collect it a priori).

 

Another example of how real reform will not be legislated so long as the rackets exist.